Today (Wednesday), Twitter (NYSE: TWTR) beat estimates in its first-ever earnings as a publicly traded company.
Its earnings per share (EPS) of $0.02 topped Wall Street estimates by $0.03, and a revenue of $243 million beat projections by $26.14 million, constituting a 116% increase compared to the same period last year.
Twitter's advertising revenue, which makes up 90% of the company's total revenue, came in at $220 million, an increase of 121% year over year; mobile advertising revenue was more than 75% of total advertising revenue.
The good news ends there.
TWTR stock fell $8.72 per share (13.22%) in after-hours trading as of 4:30 p.m. EST.
UPDATE: A dramatic Twitter stock selloff is still underway, as the stock closed yesterday at $65.97 and opened today (Thursday) at $50.61 – a 30.35% drop. Right now, TWTR stock sits at $51.98, still a 21.21% decline.
Here's why the market is reacting so negatively to Twitter's Q4 earnings.
Twitter (TWTR): Not a Long-Term Win for Investors
The fundamentals of Twitter simply aren't solid.
The social media freshman reported a fourth-quarter loss of $511.47 million, or $1.41 per share, compared with a loss of $8.71 million, or $0.07 per share, in the year-earlier period.
Also troubling were numbers surrounding Twitter's "timeline views" – the company has said that ad revenue per timeline view is one of the "key metrics" it uses to appraise the health of its business. Timeline views are a measure of user engagement, and Twitter uses ad revenue per timeline view to track its capacity to make money from that particular engagement.
Today's Q4 showed that timeline views fell 7% since last quarter to $148 billion. On a year-to-year basis, views were up 26%, but the pace substantially declined since Q3's 50%.
In an appearance on FOX Business' "Varney & Co." Dec. 30, Money Morning Chief Investment Strategist Keith Fitz-Gerald said he thinks Twitter's stock price is overvalued.
"Customers are leaving in droves, you've got a complex thing they can't monetize, and the next best thing is a click away," Fitz-Gerald said.
The main question investors buying Twitter stock should be asking is, how will Twitter make money?
And the answer isn't pretty…
Twitter's got a 241 million a day user base – compare this to Facebook (Nasdaq: FB), which has over 1 billion. The customer base needed to support the advertising that everybody thinks is going to propel Twitter stock just may not exist.
"Twitter hasn't shown any profit potential. [It] may make a fine trading instrument, as long as the party continues, but as an investment? You can #countmeout," Fitz-Gerald wrote in October.
Instead, what drove TWTR stock so high was speculation and hype.
"Traders don't want to miss the run-up when investors recognize potential," Money Morning Capital Wave Strategist Shah Gilani commented when TWTR was trading around $50. "However, they've pushed it up in a momentum frenzy, and we all know what goes up, must come down."
A disciplined trader may see some quick profits from Twitter stock, but Fitz-Gerald recommends investors stay away – there is no long-term potential here.
With this bull market growing ever long in the tooth, it's just as important to know which stocks to avoid as which ones to buy – and we're not sold on Twitter.