TAKING STOCK: Twitter Heads

Dear Mr. Berko:

I am 65 and will probably have to work for at least 10 more years in order to have enough money for retirement. Please tell me what you think of Twitter stock. I'd buy 200 shares to make some money.

-FE, Destin, Fla.

Dear FE:

Twitter is among the growing number of bootless/useless companies selling "social access" for the lonely and encouraging their personal comments on the Internet in real time. Via this model, Twitter wants advertisers to use its site, on a pay-for-performance basis, to peddle merchandise. Twitter's average monthly active users totaled 298 million by the end of September, a 27 percent year-over-year increase. And mobile monthly active users over the same time frame grew to 226 million, a 31 percent increase. That's a lot of "Twitter Heads." The stock came public in November 2013 at $26, quickly ran up to $74 and then, six months later, went back to $30.

Twitter Heads are lonely-heart human beings who use Twitter (TWTR-$48.28) as a global platform site for public self-expression to validate themselves. Because these evolving life-forms seem to reproduce faster than the general population, the number of Twitter Heads should continue to expand at a rapid pace. This translates to impressive user growth, making TWTR an attractive platform for advertisers.

Certainly, undisputed proof is TWTR's third-quarter revenue of $351 million, which is twice last year's comparable quarter. This year, TWTR should post $1.3 billion in advertising revenues. But because Twits (the folks who manage Twitter) can't figure out why revenue must exceed expenditures, TWTR will post a loss of $550 million for 2014. And though Wall Street believes revenues will zoom by 75 percent in 2015, to $2 billion, the Twits expect to post losses of about $320 million next year. If TWTR were to continue losing money, Nancy Pelosi might advise TWTR to apply for federal subsidies citing First Amendment rights.

This company's product has no redeeming value. It can't be saved or consumed. It doesn't create wealth, reduce labor costs or make one more efficient. But TWTR is an ideal concept to entertain and bemuse the rapidly growing number of Twitter Heads in our population. Even though Twitter Heads are unique folk who have shorter brain stems and are only able to enjoy the company of other Twitter Heads, many professionals believe that TWTR could generate revenues of $4 billion by 2017 and produce earnings of 50 to 60 cents a share. However, even if these guys are right (Morningstar, Goldman Sachs, J.P. Morgan, Deutsche Bank and Bank of America), TWTR is trading at 93 times future earnings. That's dangerously high. Also dangerous is the fact that TWTR trades at a hugely rich price-sales ratio, exceeding 25-to-1.

TWTR at $48 or even $32 is a fool's bet. Unfavorable business developments or a downturn in the equity market could result in a considerable decline in price. There are nearly 700 million shares outstanding, so TWTR's market cap is about $33 billion. From my catbird seat, that value is ridiculously absurd.

This is a swell stock for three classes of investors: 1) those who are really dumb, 2) those who subscribe to the greater fool theory and 3) speculators. TWTR's market cap is larger than General Mills' ($31 billion), Aetna's ($29 billion) and Genuine Parts' ($14 billion), and the Twits have been in business for only eight years. General Mills, Aetna and Genuine Parts have been in business since before you were born, and each has a long history of good revenue, profits and dividend growth. At your age and stage, you can't afford the risks, and only a fool would invest $10,000 given TWTR's metrics.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

©Copyright 2014 Creators.com.

Published: Thu, Nov 06, 2014

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