Twitter is having a great month: Its stock has gone from about $US33 to just under $US42, a rise of 27%.
The company was once ridiculed by investors, especially after CEO Dick Costolo delivered two quarters with weak user growth. The stock had been as high as $US73.31 post-IPO, but more than half its value was wiped out when people realised that Twitter, with 255 million users, was going to be nothing like Facebook, which has 1.3 billion users.
Since the depths of May, however, Twitter has seen a nice little rally, just as I predicted it would when I bought $US1,000 worth of the stock.
A few factors are driving the stock:
YahooTwitter’s stock since May. (Click to enlarge.)
- The company just got a new CFO. Goldman Sachs’ Anthony Noto will replace Mike Gupta. That’s part of a wider reshuffle that has seen Costolo bring in a new head of product, while removing the company’s COO. Now that Twitter is public, Costolo has installed a new generation of managers.
- eMarketer forecasts that Twitter’s U.K. ad revenue will double. Doubtless, Twitter will see similar revenue results in the U.S.
- Twitter continues to roll out new revenue-bearing ad products. Mobile install ads are a product that has done well for Facebook. It’s testing a “buy button.” And it already has an integration with Amazon that lets users add items to their Amazon shopping cart by tweeting “#AmazonCart.”
- The World Cup is going on, and that should be driving solid engagement and usage.
Of course, Twitter has also benefited from the fact that the market as a whole has risen nicely in the same period. Its boat is floating on an incoming tide, so to speak. In fact, Twitter is arguably overvalued. Here’s a chart from Sterne Agee showing that:
So it shouldn’t be surprising if there is a pullback.
The company is moving to fix its problems. A Q2 earnings call showing robust revenue growth will help the case for a $US60 valuation — although it may be tempered if that user growth doesn’t appear.