If a conversation runs on social media, Twitter is often mentioned in the same breath as Facebook. It might not have the same number of members as the giant Facebook, but Twitter has become a big part of the social media landscape. Here is a short primer if you’re still not quite sure what Twitter is: it’s a global platform allowing people to share short, 140-character messages in real time. It has been dubbed the “SMS of the internet”. If you’re interested in what somebody has to say, you can “follow” their messages, called “tweets”.

I use Twitter ( @SusanHayes_ ) to tweet messages out to my audience, or “followers”. I’ve used this as a platform to let them know that I’ve published a piece on  Brexit , another one on the consumer-2-consumer economy or one on how to deal with  fear of success.

It has proven extremely useful when I want to interact with people at an event or to promote the latest featured article: I can tweet that I have arrived at the event, letting know the people who might want to meet up with me; I can tweet snippets from a speaker I am listening to at that event, or I can tweet to let people know that I’ll be onstage in ten minutes. But Twitter is vast. To turn Twitter into an instant messaging service with your chosen group of people and avoid your targeted messages being lost in the sea of tweets, you can use a hashtag (#).

I remember finding out on Twitter that Seamus Heaney and Steve Jobs had died. When I’m travelling, I check out my favourite TV programs using the relevant hashtag to keep up to date on latest developments… In addition, if you see what’s “trending”, that is, what is being spoken about by the most active users in a certain location, it gives you a wonderful window into the minds and preoccupations of people.

I was interviewed about Twitter on the Sunday Business Show (Today FM) with Conall Ó Móráin. Listen to the podcast:

Twitter is a very young company: it was created in 2006 and went public on 7 ^th November 2013. As of Friday 21 ^st January’s close , $TWTR had a share price of $17.84 and a market capitalization of $12.18 billion.   As per the Q3 2015 announcement, Twitter has 320 million monthly active users and 80 of them are on mobile. Twitter leads to 1 billion unique visits monthly to sites with embedded tweets. The company has 4300 employees around the world with 44% of them in technical roles.

The 2015 revenue is expected to be approximately $2 billion for 2015 with an EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) of $531 million. However, the earnings per share has been negative for years, primarily due to huge R&D spending, high growth-oriented operating cost and significant stock based compensation. Since the company listed, investors have simply watched Twitter making progressively less of a loss as the company has accumulated a collective deficit of $2 billion while simultaneously gathering $3.5 billion in cash. To put that in context, the company has $427 million current liabilities (i.e. bills falling due within the year) and its total liabilities equal $2 billion. In other words, Twitter can cover every single debt it has, if it was called in this minute, almost twice over.

The company needs to grow domestic and international revenue, find efficiencies, increase the ad loads, attract new active users, develop new advertising partnerships and monetise logged-out visitors and syndicated viewers. The business needs to constantly focus on increasing the number of people on the platform, increasing their engagement and turning their activity into money.

Twitter told the world that in Q3 2015 they experienced 165% growth year-on-year in ad engagements, but a 39% decline in the cost per ad engagement. One of the key developments that recently made headlines is the proposed change in the tweet length aka “Beyond 140”. The defining characteristic of Twitter is the 140 character length message… but this is also a limitation for anybody who might want to write a longer note. Until now, people might link to another page outside of Twitter – which is problematic for Twitter since it leads people away from its site -, or else take a screenshot of text and tag the image. Now, the company is considering increasing the length of tweets to 10,000 characters. Some may argue that if this happens, Twitter is no longer Twitter. In my view, this would be a mistake. However, the difference between the platform in 2006 and today is 320 million active participants. This is an immensely powerful community and changes the parameters of what defines the asset now.

While Twitter’s revenue trajectory is spectacular, its share price has followed the opposite path. It listed at $26 per share when it listed on the 7th November 2013. In a frenzy of trading that day, the share rose to the height of $50.09  and then made its own record by reaching $74.73 before the end of that year. Since that, it has drifted lower and lower to where it’s now well below that initial purchase offer price at $17.84. The company doesn’t have preferred stock, so an investor with deep enough pockets and strong enough ambitions can soak up enough shareholding to gain significant say in the strategic equity direction of the company.

On Wednesday 20 ^th January, a rumour hit the wire that News Corp may be interested in buying out the company and the share price jumped 12% with excitement. This subsequently proved to be false and the stock held the gain thereafter. However, one does have to ask: if a company isn’t making a profit ten years later, has immense potential if the correct interdependent strategies were executed, and the CEO has another sparkler of a company where he is in situ, is the company ripe for a takeover?

Further, who might be on the other side of the transaction? The most obvious is Google; as it has plenty of money to buy the company at its current market cap and a lot more. Its own social network, Google+, hasn’t gained a shred of the same traction as Twitter: to Google, Twitter could become a strategic investment, in much the same way as WhatsApp was to Twitter.

Twitter is also a serious rival to “googling” when one wants to search out information. Google will show you what’s most relevant to your keyword search, but Twitter will tell you what’s most timely. Other potential buyers come to mind, including FaceBook, Microsoft, etc., but apart from having more cash than what they know what to do with, what benefit would Twitter actually bring to them that would leverage their own businesses? There are other alternatives being speculated upon, but a natural suitor doesn’t jump out at this time.

Twitter was in the headlines again this week as four of Twitter’s top people left the company; each of whom had been there an average of five years. The message was delivered by @Jack himself with a screenshot of a press release. (Ironically, this is the very reason he wants to extend the 140 character limit). The market initially reacted badly, wondering if this spelled disaster for the company: perhaps even the people at the top of the business didn’t believe in it any more. However, since then, there have been musings that maybe it’s the case that Jack Dorsey wants to elevate existing talent and bring in new fresh ideas. To use an old adage “what got you here won’t get you there”. Let’s also bear in mind that since Jack Dorsey came back to this top role, he has cut the workforce by 8% with the rationale that smaller companies are more nimble and such environments are more conducive to startup innovation. (Few would doubt there was a cost-cutting rationale in there too under the relentless pressure from Wall Street).

Earlier this year, the company sent out a press release noting that the Q4 earnings and full fiscal 2015 year results would be issued on 10 ^th February after the market closes. Given the decline of the share price below IPO levels, the (quashed) rumour of last week, the return of Jack Dorsey, the tried patience of investors as they see quarter after quarter of losses, this conversation, to be held on conference call, Twitter and Periscope, will be very interesting indeed. There has been a lot of criticism levelled at Twitter about its flat user growth. By now, the markets, analysts and the media are operating off very old information (i.e, Q3 2015) and this update will be met with great attention.

According to a comparative analysis between 2013 and 2015 :

In short, Twitter has never been cheaper. The share price saw numbers last week that it hasn’t seen before – and yet its revenue and EBITDA have never been higher.  We can’t examine a P/E ratio as it doesn’t make sense with a negative denominator, but on a Market Cap/Revenue basis, the stock is trading at approximately 6 times, which is a world away from the 28 times it traded in December 2013. However, it still doesn’t have a positive GAAP EPS and isn’t making it easy for investors to see when that might happen – which makes them question if it ever will.

Looking back over Twitter’s life on the exchange, it has met its revenue goals over and above what it set out to do, over and over again. However, it’s still not making a profit and as the adage goes: “earnings drive share prices”. Personally, Twitter is not my usual type of stock. Ordinarily I go for a company that is making strong, sustainable profits, generating a dividend at good value.

On this occasion, I’m adding on a small holding of Twitter to my portfolio given that its P/Sales is so low relative to its own history, it does have longer term profitability potential and has a relatively small enough price tag to be bought out by a bigger player or private consortium. There isn’t any doubt about it, Twitter comes with a warning that this stock could dramatically rise or disappear. Whatsapp, Snapchat and Facebook messenger are continually innovating, Twitter needs to act fast to succeed or be irrelevant .  It has all the characteristics of a high-risk, growth stock and it is not a stock I’d recommend for the average DIYInvestor or retail investor. The volatility will lead to a permanent loss for many investors, stay away .  On a technical level, I would prefer to see the MACD (Moving Average Convergence Divergence) move into positive territory before executing a buy market order. Alternatively, I expected earnings surprise on 10 ^th February I could buy a call option or bull call spread to expire in March to take a low-risk, short term view on a  or sell a put option later into the year and generate some income while I wait for Twitter to move closer to their elusive profit.

In reality, Twitter is not a stock I’d normally have in my portfolio but on this occasion I’ll take a very small position and add it to a diversified portfolio. (Repeat) Twitter has all the characteristics of a high-risk, growth stock and it is not a stock I’d recommend for the average DIYInvestor or retail investor. The volatility alone could lead to a permanent loss for many investors. I’ll update the post again after the 10th Feb earnings report.

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