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Why Twitter is Still a Lousy Investment

Real Money's Jim Collins ponders a barely profitable company with a $43 billion market cap.

Jim Collins thinks Twitter TWTR is a lousy investment – and he doesn’t really need 280 characters to say so.

“Twitter is still an incredibly overvalued stock - how on earth is it worth $43.5 billion?,” he asked recently on Real Money.

“This is a barely profitable, tiny company that provides a horrible service -- or one that is routinely used by horrible people, anyway,” Collins said. “It generated a grand total of $1.284 billion in revenues in the third quarter. How on earth is it worth $43.5 billion? Granted, that's down from nearly $50 billion before the stock's recent swoon, but, again, it just makes no sense.”

Collins says he bought some weekly puts ahead of the company’s latest results, and has “been very happy” to see TWTR shares dropping since.

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“Those earnings plays are dice rolls and I am always happy to close out a position with a win, as I did in the TWTR puts,” he said. “But why is Twitter stock declining? ... Twitter is down for the most logical reason: a weak sales forecast.”

Collins notes that “Twitter now tracks monetizable daily average users, a metric it has changed several times and one for which there is no third-party confirmation,” 

Beyond the management obfuscation around its user base, Twitter has other problems, according to Collins. “The real proof in the pudding is in the operating results. ... as Reuters put it, 'Twitter Inc said on Monday it would pay $809.5 million to settle a shareholder class action lawsuit accusing the social media company of deceiving investors about how often people used its platform." In fact, Twitter was barely profitable in the quarter.”

This from TWTR's shareholder letter:

"Adjusted operating income, which excludes the one-time $766 million litigation-related net charge, was $23 million, reflecting an adjusted operating margin of 2%. This compares to operating income of $56 million and an operating margin of 6% for the same period in 2020."

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