By Michael Cintolo, Chief Analyst of Cabot Market Letter and Cabot Top Ten Trader
Originally from Cabot Wealth Advisory 2/26/15
“Twitter is a one-of-a-kind company with a one-of-a-kind service that’s producing rapid (nearly triple-digit) revenue growth and skyrocketing earnings as the firm monetizes its base of 288 million users. Throw in tremendous trading volume, which allows institutional investors to buy and sell freely, and that’s why Twitter has surged recently—stocks with all of these sterling characteristics don’t grow on trees. The company’s fourth-quarter report was very strong: timeline views grew a solid 23% from the prior year (to 182 billion!), and thanks to myriad new and innovative advertising products and initiatives, ad sales per timeline view surged 60%. The only remaining worry here is whether Twitter’s user base has topped out (it actually fell a few million from the prior quarter), which would obviously limit future growth. But management said the December drop in users was mainly from an update in Apple’s software (i.e., a one-time event) and that user growth should resume in the quarters to come. Yes, the valuation is high, but the top brass has already guided to a huge 2015 (revenues up 65%, and even that is likely conservative), and despite the recent growth, Twitter’s users are being monetized significantly less than users on Facebook and other social media, so there’s plenty of room for growth. It’s a big story and a potential liquid leader.”
My only hesitation with TWTR is that there’s a good chunk of resistance in the 50 to 52 area. Still, I think a small position (maybe half or two-thirds what you normally buy, dollar-wise) somewhere in the 46 to 49 area can work, with a loose stop near 42 and with the idea of adding more should you develop a profit.
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 1/13/14 Sign up for Cabot Wealth Advisory—it’s free!
It’s time for my third installment of “Best Disruptive Stocks.”
Ideally, these are companies that address a mass market, and thus have the potential to impact our lives for the better.
Ideally, these are companies that are young and not yet well known or well respected. Thus they have the potential for increased perception by investors as time goes by.
Ideally, these stocks are young and not widely owned. Thus they have the potential to be bought by more investors—especially institutions—and thus see their stocks soar over time.
All the Cabot editors have made contributions to this list of 10, and the stocks are presented in no particular order, though I am trying to feature them when they’re at good entry points. I hope you enjoy them.
Disruptive Stock Number Three: Twitter (TWTR)
Twitter is one of the 10-most-visited websites worldwide—pretty good for a company that was born less than eight years ago.
Using its software, more than 200 million users send more than 400 million tweets per day—each limited to 140 characters—for free!
And what do these tweets say? Well, most of them might be termed inconsequential, but that’s a value judgment. The indisputable fact is that the business has grown rapidly every year since its launch and there’s no end in sight, particularly with the economic growth that’s expected in China.
The Twitter accounts with the most followers belong to Katy Perry, Justin Bieber, Lady Gaga, Barack Obama, YouTube and Taylor Swift. But anyone can get a Twitter account, and start sending messages into the ether, hoping someone will listen.
(If you want to receive some investing tweets, you can follow me @Timothy_Lutts (though I don’t tweet much) or @MikeCintolo (he tweets more) or our company tweeter @IconoInvestor.
Twitter has also proved very useful at organizing people around social and political issues like the Arab Spring movements and the Occupy movement here in the U.S. The Boston Police Department used Twitter to announce they’d caught the Boston Marathon bomber.
In sum, Twitter is massively disruptive because it’s a free medium of communication with minimal barriers to the user, and it allows organization and leadership of people around shared ideas.
So how does Twitter make money? Just like Google, through advertising, known as promoted tweets, promoted trends and promoted accounts.
In 2010, Twitter’s revenues were $28 million. In 2011, they were $106 million. And in 2012, they were $317 million. 2013, for which we’ll get final numbers on February 5, should total about $620 million. That’s great growth!
The company has not managed to post a profit yet; it’s been too busy growing. But as investment slows down and advertising grows, the potential for earnings is quite large, with profit margins easily above 20%.
What’s most revealing to me today is the chart.
Twitter (TWTR) came public on November 7, just over eight weeks ago.
The price charts shows three weeks of slightly down action, building a short base, and then a very strong advance through December. The whole market was rising then, of course, but a glance at the Relative Performance Line reveals that TWTR was climbing much faster than the broad market, and that’s a great sign.
Since peaking on December 26 at 75, the stock has pulled back normally, and looks to be settling in to support at 55, which might mark a great entry point.
So, you could simply invest in Twitter right here. But if you did, you’d be on your own and there’s a good possibility that some heavy volatility would bring some “uncomfortable” times.
So what I recommend is that you become a regular reader of Cabot Top Ten Trader, which is your source of the hottest growth stocks, and where you’ll not only get expert buying advice on stocks like TWTR—you’ll also get selling advice when it’s time to move on. Take a look here!