Twitter shares head deeper into Twilight Zone

Another day, more fresh all-time lows for Twitter.

The stock has been on this grim streak since the first week of the year.

All told though, Thursday could have been a much worse session, after the micro-blog network arguably presented its worst set of earnings as a listed company the night before.

There was a severe let-down in the metric on which the market is most hawkish, and its sales forecast for the next quarter also disappointed.

 

• 320 million Monthly Active Users (MAU), unchanged from Q3
• Excluding “logged out users” (Tweeting by SMS texts) MAU actually fell for the first time to 305 million.
• Q1 revenue guidance was $595m-$610m vs. $627m consensus
• Q4 revenue rose 48.3% to $710.5m vs. $709.9m consensus
• GAAP net loss shrank to $90.2m
• Non-GAAP profit was $0.13/share, a cent above consensus, vs. Q4 2014’s $0.20/share

 

 

Chief window breaker 

To top it all, Twitter’s top execs again struck the same eerie, unflinchingly grim tone in the post-release call as they did last quarter.

Many have taken over operations formerly managed by VPs and senior officers who exited in a flood of “resignations” in January.

The macabre attitude of all who remained might have been inevitable.

Chief of among the Twitter dissers was, again, CEO Jack Dorsey.

He lambasted Twitter for its “broken windows and confusing parts”.

This was both refreshing and concerning, suggesting he now accepted Twitter needs serious repair from its ‘broken’ state.

Even, perhaps, that more windows may need to be smashed before a proper fix.

This of course “will take time”, to quote Executive Chairman Omid Kordestani.

That tone of realisation among top execs suggests an acceptance of further potential punishment for the shares.

 

 

Reality “checkpoints”

Meanwhile, Dorsey’s description of life as a double-CEO also had a surreal edge.

“We have a structure that allows me to see what’s happening in the week (at Twitter and Square),” Dorsey told analysts.

“We set off the week together at both companies and we have checkpoints and then the balance of my time is really spent on recruiting.”

There was no real explanation about safeguards, quality assurance, or back-ups in this.

Hopefully crisis management is as orderly as Dorsey suggested.

 

 

Talk is cheap, Twitter soon cheaper

In short, Twitter’s latest chance to re-cast the narrative among investors and critics, as we suggested was necessary last night, didn’t work.

That leaves little near-term prospect that the stock will emerge from the ‘Twilight Zone’ it has entered.

Takeover talk has persisted, but none of the mooted pre-M&A moves have been substantiated.

We reiterate our view that a takeover is unlikely—especially whilst TWTR trades above our Discounted Cash Flow Fair Value estimate.

We modelled fair value at $5.50/share in July last year, with much caution and qualification.

Using the same admittedly strict parameters right now marks fair value even lower, in theory as low as $3.61.

We assume the market value of a company in turmoil would logically need to be close to fair value for a CFO to recommend such a challenging takeover attempt.

 

 

From a technical basis, TWTR is descending in orderly fashion through the channel from last October.

New lows in quick succession make the task of setting further price points beneath, difficult.

Extension intervals from a rally which stalled close to $32 in late-October, place overhead challenges at $18 and $20, though when (or if) these will be faced is dicey.

 

DAILY CHART

Please click image to enlarge

 

 

Traders of City Index’s Twitter Daily Funded Trade have dealt the title back up to the week’s high a tad above 1550 several times, with no breakthrough.

Combined with the triangular tightening of the range in half-hourly intervals on Thursday, a moderate breakout could be imminent.

With aforementioned resistance so solid, a weaker direction of any new leg would not be a surprise.

 

 

HALF-HOURLY CHART: TWITTER DAILY FUNDED TRADE

Please click image to enlarge