When a company is struggling to hold on to customers or find ways to eke out revenue, you'll often see it begin to release news of adjustments or pivots in its business model, replete with claims that the new strategy will turn things around.
I've seen this time and time again in recent months, and it can be difficult to determine whether these are true buying opportunities for companies on the cheap or signs of a failing stock rattling off comforting words.
Recently I received an interesting question from a Money Map Report reader, Jack, that gave us a great example of this. The stock was as high-profile as they come, Twitter Inc. (NYSE: TWTR).
Jack asked, "Twitter's going to advertise shopping goods so you can buy while you Tweet; is it time to recommend the stock?"
An astute question, but my answer is an unequivocal no.
The Short That Keeps on Giving
I first brought Twitter to the attention of my readers as a short candidate in my 2014 outlook, when it traded at nearly $70 a share. I've re-recommended the short several times since.
This is a clear example of a move that looks a lot less like something from a strategic playbook and more like a "Hail Mary." Management is throwing everything it can at the proverbial wall to see what sticks.
It's not as though Twitter has a lot of room for "awareness" growth. More than a billion people have tried Twitter and left. This is a platform that has already been saturated, and I believe it's in the process of dying out.
Twitter has also demonstrated time and again that the company is unable or unwilling to control the tone of the conversation that it enables. It has become an online venue for negativity and "trolling." Advertisers have figured this out, and I think very few are going to want to spend money risking their brand, let alone their revenue.
At the same time, advertisers have started getting over their "fear of missing out" on the promise of social media marketing, and reality is setting in. The results are in, and it's becoming clear which social media spaces work for advertisers and which ones fall short.
Social media is personality-based, so while a company like Facebook Inc. (Nasdaq: FB) can target ads at you based on your interests and "affinities," Twitter drives traffic based on the personalities that its users are following. In other words, it's based not on the identity of users but rather on whom the users want to follow and interact with.
In that sense, it's essentially a broadcasting service. And Twitter's constraints - brief messages and limited targeting capabilities - make it less appealing to advertisers than more traditional broadcasters.
The Limits of "Hopium"
The other big problem with Twitter is that it has been riding high on the "hopium" that makes this sub-segment of the tech sector look so alluring. As I've noted repeatedly, hope is not a viable investment strategy. And without an underlying foundation of business prospects and real results - the basis for sound investing since the dawn of time - there's no justification for upside potential.
The "hopium" dealers will, of course, defend companies like Twitter, insisting that "it's different this time, and everything has changed."
But everything hasn't changed.
"Everything" never changes. If you want to make money investing in innovative companies, look at those that address real needs, provide real value, and have solid fundamentals. Not to mention plenty of cold, hard cash at their disposal.
Twitter is still very much a one-way ticket and not worth the risk.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.