Until today, I have been long TWTR common and short TWTR calls.
But today, I will be taking off my short call hedge and moving back net long TWTR. I previously was looking for a share price below $45 as a re-entry level.
Specifically, my channel checks this week have uncovered a surprisingly swift and recent improvement in advertising commitments from current advertisers and a clearer indication that prospective advertisers are poised to adopt Twitter as an important platform in the time ahead. This could serve to be a pathway and important near-term catalyst to a meaningful up-leg in Twitter stock.
Jim Cramer's charitable trust agreed with my call. Action Alerts PLUS added shares to the portfolio earlier, noting that while "Twitter is still years behind Facebook as an advertising platform, many advertisers who have come to understand how to properly utilize Twitter's ad platform have seen material improvements in click-through rates, downloads and sales conversions. Advertisers are finding that the targeting of keywords, trends and events is highly effective."
My basic investment thesis on Twitter -- initially expressed prior to its IPO on Real Money Pro in "How Tweet It Is" -- was that the Twitter platform was a powder keg of multiple opportunities, including, but not restricted to, monetizing advertising and video on the company's mobile platform.
I also believed that, despite it relatively high valuation (measured by a lofty market capitalization to sales, cash flow and profit), Twitter's unique social media franchise and first-adopter status could result in the company becoming takeover fodder for any of a number of potential acquirers.
Here was the case, still intact, I made before Twitter's IPO:
Twitter is uniquely positioned in for the mobile delivery of content and advertising.
Twitter reminds me of Web portal America Online during its formative growth period of the early 1990s. Back then, AOL (AOL) and CompuServeformed a strong duopoly in the Internet service provider and email spaces. Eventually, CompuServe, which served the technical community and was a wholly owned subsidiary ofH&R Block (HRB) - Get Report, lost market share, and by providing Internet access to the consumer and aggregating information for those who were not very familiar with navigating the Internet, AOL had a dominating position as it exited the decade. AOL's shares rose spectacularly during the period. Today, Twitter is much like America Online was from 1992 to 1995, practically all alone in its monopoly market position.
Twitter holds a first-adopter and monopolistic position.
Twitter has a long runway ahead of it, where it faces limited direct competition. Whereas in the early 1990s AOL and CompuServe held a duopoly, Twitter has the market to itself. There are two obvious potential competitors to Twitter: Facebook (FB) - Get Report andGoogle (GOOGL) - Get Report. Facebook is trying, but just can't get there as of yet for real-time. On Google, I don't think the company has any interest in competing against Twitter. According to an exchange I had withBTIG'sRich Greenfield, it feels more like Google wants to be the back-end connectivity of your identity online with Google Plus compared to Twitter as a real-time news source.
Twitter stands in the middle of the evolution of content creation, distribution and discovery.
Twitter is the natural service that follows the 25-year-old tradition of a changing delivery of content creation, distribution and discovery that were previously the property of Web browsers such asNetscapein the early 1990s, Web portals such as AOL andYahoo! (YHOO) in the mid-to-late 1990s, search engines such as Google in the early 2000s and social networks such as Facebook in the late 2000s.
Twitter is gaining broad acceptance.
A 2013 study conducted byArbitronandEdison Researchfound that 44% of Americans hear about tweets through media channels other than Twitter almost every day. As the company expands, so will the breadth of content and Twitter's reach.
America Online's dominant market position led investors toward being forgiving with regard to normal metrics, which might also be the case with Twitter.
Twitter's market presence and outstanding growth opportunities will likely yield a pass on traditional metrics (as relationship to operating results, tangible book value etc. will be thrust aside).
Twitter has a large opportunity to expand its user base.
Similar to America Online in the early 1990s, the key to Twitter's growth will be the opportunity to expand its consumer base. In turn, platform partners will expand their offerings, and advertisers will eye greater opportunities and engagements. According to industry sources, there are 2.4 billion Internet users and 1.2 billion smartphone users vs. only 230 million monthly active users on Twitter.
Back last Fall, Twitter's shares fell from the mid-$50s to the mid-$30s as investors grew impatient with the company's monetization efforts, reminiscent of Facebook's widely-heralded mobile failures, which caused Facebook shares to fall immediately after its 2012 IPO. This provided an unusual entry point. I began buying the stock in late-November/early-December and placed the stock (at $37.50) on my Best Ideas list on Dec. 10, 2014.
But just in the manner in which Facebook engineered a quick recovery in it's mobile efforts (which led to a sharp recovery to the upside in FB shares), I am now getting anecdotal evidence that Twitter is also facing a turn in it's own monetization efforts.
Finally, back in January, 2015, noted venture capitalist Jason Calacanis made a persuasive case on CNBC (emphasizing many of my points) that Twitter is a unique franchise facing multiple business opportunities.
It is a must-view.
At the time of publication, Kass and/or his funds were long TWTR, although holdings can change at any time.