Twitter Could Sell Off Into the 40s

Twitter Inc. (TWTR) sold off more than 15% at the end of April after posting weak Q1 2021 earnings and dropped to the lowest low since January this week, closing under the critical 200-day moving average for the fifth day in a row. A market wide decline generated most of downside but outrage following a report that Facebook Inc. (FB) would release an Instagram for children contributed to bearish sector sentiment.

Weaker Than Expected User Growth

Along with Facebook and Alphabet Inc. (GOOG), Twitter performance is levered to advertising revenue that’s projected to grow rapidly as U.S. and world economies emerge from the pandemic. However, user growth appears to be stumbling as customers return to normalcy, potentially forcing these issues to miss lofty quarterly estimates. April earnings stoked those fears, with weaker than expected Q1 user growth and lower Q2 guidance.

CEO Ned Segal noted after the report that Twitter grew 30% on an annualized basis in Q1 and now expects Q2, Q3, and Q4 to book “low double digit growth with the low point in Q2”. This outlook isn’t too exciting, given rapid 2020 growth as a result of lockdowns and a hotly-contested presidential election. It’s even worse after months of bullish hype about a new ad platform that was expected to bring profits closer to deeper-pocketed rivals.

Wall Street and Technical Outlook

Wall Street remains skeptical about the long-term outlook, posting a consensus ‘Hold’ rating based upon 10 ‘Buy’, 1 ‘Overweight’, and 27 ‘Hold’ recommendations. In addition, four analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $30 to a Street-high $83 while the stock is set to open Wednesday’s session about $13 below the median $65 target.

Twitter came public in the 40s in 2013 and topped out in the 70s in early 2014. The subsequent decline ended in 2017, yielding a two-legged advance that finally reached the prior high in February 2021. The subsequent breakout failed, yielding a double top pattern that broke to the downside in April. The stock is now trading below the 200-day moving average for the first time since July 2020, fully engaged in a downtrend that could reach eventually support in the 40s.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.