Twitter Stock Forecast: Why You Should Still Go Long On Twitter

motek 1The Twitter stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

  • Twitter’s stock touts a 1-month price return of 24.23%. Profit taking now is justified. However, I’m still endorsing this stock as a buy.
  • TWTR has recovered from its March sell-off 52-week low of $20. This stock is still way below its 52-week high of $45.86.
  • Yes, the COVID-19 pandemic is slowing the growth of digital advertising this year. Business closures are forcing some advertisers to spend less.
  • Going forward, more product sellers and marketers will no longer spend on out-of-home/billboard advertising. They will just re-align their ad budgets to digital advertising platforms like Twitter.
  • My buy rating for TWTR is also largely influenced by its valuation ratios

The pandemic sell-off last March made Twitter (TWTR) very affordable. Congratulations to those people who went long on TWTR when it was trading below $25 and below $30. TWTR has since recovered. It touts a 1-month price return of 24.23%. I won’t fault you if you take your profits now on Twitter. However, I’m still endorsing this company’s stock as a reasonable buy. The COVID-19 pandemic is not going to stop Twitter from continuously growing its digital advertising and technology licensing businesses.

(Source: Seeking Alpha)

The Q1 2020 earnings report last April 30 convinced me that TWTR is now a viable long-term bet on digital advertising. We remain long on Google (GOOG) and Facebook (FB) because we believe in their top-grossing leadership in digital ads. Twitter has been profitable for the past two years. It has matured its business model to the point it can now profit from its niche platform for digital advertisers. Yes, Twitter will never grow near the success level of Facebook. Twitter is a buy because it can grow safely in its own protected zone of digital advertising.

Twitter Is Inimitable

Twitter’s unique 280-word messaging platform is highly-social and news-driven. Political news or any news makes Twitter forever relevant in this world. Marketers will continue to buy ad placements on Twitter’s advertising platform because most Twitter users are better educated and with high-income.  Twitter’s core audience is politics-engaged. Advertisers know very well that political news and controversies/propaganda is effective when it comes to social network engagement.

(Source: Pew Research)

TWTR is a buy because it is already mature enough to sustain its growth momentum without incurring net losses. Twitter has gathered enough loyal users so that it can be consistently profitable. The quantitative AI of Seeking Alpha gives Twitter a grade of B+ for Profitability. The chart below clearly states that Twitter’s 5-year average gross margin has been 66.51%. This consistency is in spite of Twitter posting a new TTM net income margin of 36.39%.

Twitter is a buy because it managed to maintain its gross margin steady over the last five years while it managed to improve on its 5-year average net income margin of 4.92%. This should convince us that Twitter’s annual advertising/licensing revenue is growing without a decrease in its gross margin performance. Twitter’s 5-year revenue CAGR is decent at 16.98%.

(Source: Seeking Alpha Premium)

Statista’s quarterly revenue chart below also denotes that Twitter’s data and technology licensing segment is steadily growing. The digital advertising business of Twitter is also posting quarterly numbers that are growing year-over-year. Facebook and Google have yet to find an equalizer to Twitter’s inimitable social networking approach. Twitter is now therefore a safe long-term investment.

The quarantines and travel restrictions from this pandemic helped Twitter increase monetizable active daily users (mDAU) to 166 million. This is notably higher than Q1 2019’s 134 million of monetizable active daily users. The U.S. now has 33 million mDAU (up from the 31 million in Q1 2019).  More importantly, Twitter’s international mDAU is now 133 million. This is significantly higher than Q1 2019’s 105 million international mDAU. These active users are largely responsible for the more than 500 million tweets sent per day.

Twitter’s high number of U.S. and international mDAU is why advertisers will remain loyal forever. TWTR is a buy because Twitter’s audience is way different than the users of Instagram or YouTube. Twitter is where thinking, moneyed people engaged in debates. This uniqueness is probably why Barron’s is bullish on Twitter. I am therefore giving TWTR a one-year price target of $41.

Companies who now shun out-of-home and billboard advertising will have more money to spend on Twitter advertising. The coming November U.S. elections will increase the number and engagement of U.S. Twitter users. It will be great for COVID 19 pandemic-affected companies will be to promote their businesses to educated, employed Twitter users. The pro-Trump and anti-Trump Twitter users are all the same – they are all potential buyers of what marketers are trying to sell.

Conclusion

The highly-political, highly-social design of Twitter makes it exceptional for marketers who want to expand their targeted ads audience beyond Facebook and Google. The 500 million tweets that get sent everyday made Twitter an important platform for aggressive digital marketers and product endorsers. The data that Twitter gathers from its very active users is also a very valuable commodity that Facebook and Google are likely licensing.

TWTR is a strong buy if you believe in its momentum. EMA analysis of Twitter’s stock reveals it’s a momentum buy. The 5-day EMA is $33.21. This is below its current trading price of $34.87. EMA traders know that a stock is a buy if its 5-day EMA is above its trailing EMA. TWTR’s 13-day EMA is 32.16. Its 20-day EMA is $31.44 and its 50-day EMA is $30.20.

(Source: StockTA)

My buy rating is also thanks to its very bullish one-year Twitter stock forecast score from I Know First. TWTR already has high valuation ratios but the predictive AI of I Know First still agreed with my assessment that this stock still has more upside potential. Investors overvalue stocks like Twitter because they believe in its future profitability and growth potential. We invest in fundamentally-overvalued companies because we are betting on their forward multi-bagger potential.

Past I Know First Success with Twitter Stock Forecast

I Know First gave bullish Twitter stock forecast in the past. On May 10, 2020, the I Know First algorithm issued a bullish 14-day forecast for TWTR with a signal of 0.66 and a predictability of 0.25, the algorithm successfully forecasted the movement of the TWTR share.  After 2 weeks, TWTR shares rose by 8.99% in line with the I Know First algorithm’s forecast. See chart below.

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Please note-for trading decisions use the most recent forecast