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Twitter (TWTR) Stock’s Massive Dump Puts It Dangerously Close to IPO Price

Last Updated September 23, 2020 1:12 PM
Kiril Nikolaev
Last Updated September 23, 2020 1:12 PM

The U.S. tech industry is having a less than stellar 2019. This year, unicorn companies such as Uber, Lyft, and Slack have failed to live up to expectations. On top of those firms, shares of other newcomers such as Pinterest, Fiverr, Peloton, and Zoom have tanked over the last few months.

Speaking of tanking shares, Twitter (NYSE:TWTR) appears to be following the trend. Shares of the microblogging social media platform took a nosedive Thursday, declining over 20% after the company released its Q3 earnings report.

Twitter broke uptrend line
A technical analyst illustrating how TWTR broke the uptrend line | Source: Twitter 

The Jack Dorsey-led company missed Wall Street estimates on profits and revenues . The company generated $824 million in revenues, which is lower than consensus expectations of $837.9 million. In addition, Twitter posted an adjusted earnings per share (EPS) of $0.05, which is far from analysts expectations of $0.20 per share.

As a result, the tech company had to lower guidance for its fourth quarter. Twitter expects revenues between $940 million and $1.01 billion, which is below forecasts of $1.06 billion.

Hedge Fund Manager: Dump Is an ‘Overreaction’

Although the Q3 earnings report had elements that made Twitter look bad, it also delivered solid news that can help the company get out of the rut. For instance, Twitter’s monetizable daily active users (mDAU) climbed from 124 million last year to 145 million this year to reflect a 17% year-over-year growth. This is an indication of the company’s accelerating global growth.

Twitter users
mDAU growth in the Q3 of 2019 is the fastest since Q4 of 2017. | Source: Twitter 

The chart above reveals that Twitter’s mDAU has been steadily growing over the last four quarters. This is an indication that the company is growing its revenue base which it can leverage later on. Perhaps, this is one of the reasons why Douglas Kass , a hedge fund manager, believes that the 20% plunge was unreasonable.

Twitter dump overreaction
A hedge fund manager and author believes Thursday’s dump was an overreaction. | Source: Twitter 

Will Meade: Twitter to Become a Big Winner in 2020

Douglas Kass is not the only hedge fund manager who’s bullish on the stock. Will Meade, also a hedge fund manager, believes that Twitter will bottom out and surge in 2020 because of the presidential elections.

Bullish catalyst for Twitter
Will Meade sees the presidential election as a bullish catalyst for Twitter. | Source: Twitter 

Mr. Meade is not alone in his view that Twitter is close to bottoming out. The widely-followed Trader Stewie  also believes that the price will stabilize soon as it approaches a strong support area between $28-$30.

Good support area
Trader Stewie expects bulls to defend their territory between $28 and $30. | Source: Twitter 

We also talked to Ian McMillan, CMT, a market technician at ClientFirst/Adaptive . He also sees a solid support around $30. He told CCN.com,

While there is good support around the $29-31 area (a 50% retracement), I would expect any rebound or rally to be less impressive, speed-wise, compared to the original trend was saw that began in early 2017. Hard to believe that TWTR could outperform over the coming months and I would expect the stock to build a base versus putting in a V-bottom.

Twitter broke the uptrend line
Twitter broke the uptrend line. | Source: Ian McMillan, CMT

The social media platform may be a few bucks away from its IPO price, but shares are looking attractive even to hedge fund managers.

Disclaimer: The above should not be considered trading advice from CCN.com.