Social networking service provider Twitter, Inc.’s (TWTR) platform has been buzzing with ‘tweets’ thanks to global conversations around current events such as COP26 and Squid Game. Its shares have gained 33.2% in price over the past year to close yesterday’s trading session at $55.11. However, the stock has declined by 11.1% over the past month and nearly 21% over the past three months.

Even though it is still unclear to what extent Apple Inc.’s (AAPL) privacy changes have impacted TWTR’s business, the company’s third-quarter earnings disappointed investors. Moreover, hedge funds’ interest in the stock has declined lately.

Last month, the company’s Customers Lead, Sarah Personette, sold 15,485 shares. Furthermore, in October 2021, TWTR agreed to sell MoPub, a mobile-focused advertising exchange, to AppLovin Corporation (APP). So, the stock’s near-term prospects look uncertain.

Here’s what could influence TWTR’s performance in the upcoming months:

New Features

On October 12, TWTR introduced new ad features and revamped the algorithm that decides which ads users see. The company introduced its Super Follows feature on September 1, which is a new way for it to earn monthly revenue by sharing subscriber-only content with their followers on the platform. In addition, it introduced its Safety Mode, which is a new feature designed to reduce disruptive interactions.

Disappointing Third Quarter Earnings

TWTR’s revenue increased 37.1% year-over-year to $1.28 billion for the third quarter ended September 30, 2021. However, the company’s total costs and expenses increased 130.2% year-over-year to $2.03 billion. Its loss from operations came in at $742.55 million, compared to $56.11 million in income in the year-ago period. Its non-GAAP net loss was $434.42 million, versus $151.38 million in income in the prior-year quarter. Also, its non-GAAP loss per share was $0.54 compared to $0.19 EPS in the year-ago period.

Stretched Valuation

In terms of forward non-GAAP P/E, TWTR’s 223.85x is 1,057.1% higher than the 19.35x industry average. Likewise, the stock’s 2.65x forward non-GAAP PEG is 95.4% higher than the 1.36x industry average. Moreover, its forward EV/EBITDA and P/S of 27.92x and 8.41x, respectively, are higher than the 9.60x and 1.65x industry averages.

POWR Ratings Reflect Uncertain Near-Term Prospects

TWTR has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. TWTR has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Quality, consistent with its trailing-12-month EBIT margin of 7.45%, which is 31.9% lower than the 10.95% industry average. TWTR has a D grade for Growth and Sentiment. This is justified because analysts expect its EPS to decline 7.9% year-over-year to $0.35 for the current quarter, ending December 31, 2021.

In addition to the POWR Rating grades I’ve just highlighted, we’ve also rated TWTR for Stability and Momentum. Get all the TWTR ratings here.

Also, TWTR is ranked #45 of 78 stocks in the F-rated Internet industry.

Bottom Line

TWTR has introduced several new features over the past few months. However, the stock is currently trading 31.8% below its 52-week price high of $80.75, which it hit on February 25, 2021. According to management, the sale of MoPub in 2022 could lead to a revenue loss of between $200 – $250 million. Furthermore, its total expenses are expected to increase more than 20% next year “prior to hiring any more people or making additional investments during 2022.” So, we think it could be wise to wait for a better entry point in the stock.

How Does Twitter (TWTR) Stack Up Against its Peers?

While TWTR has an overall POWR Rating of C, one  might want to consider investing in its industry peers with an A (Strong Buy) or B (Buy) rating, such as Travelzoo (TZOO), Alphabet Inc. (GOOGL), and Yelp Inc. (YELP).

TWTR shares rose $0.21 (+0.38%) in premarket trading Tuesday. Year-to-date, TWTR has gained 1.77%, versus a 24.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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