Twitter Inc. (NYSE: TWTR) stock rebounded over 9% in the past month as investors regained hopes about the company’s future amidst its fourth-quarter earnings results in the first week of February. The shares have fallen over 15% in the past three months and over 11% in the past six months due to weak quarterly performance in the third quarter.
The stock has risen over 3% in the past year while it has advanced over 30% in the past two years. This made it clear that the company is facing near-term challenges that could be resolved once it gets past Q4 earnings. The stock has been trading at $33.22 on Thursday, which is better than the 50-day moving average of $31.25 but lower than the 200-day moving average of $36.62.
The traders were concerned with the loss of the digital political advertising market. According to its new political advertising policy, Twitter globally prohibits the promotion of political content with effect from November 22, 2019. This comes on the heels of the company struggling with advertiser interest.
However, this could turn profitable in the long run backed by the renewed advertising revenue as the prohibition could avoid regulatory risks and capture greater user growth, and user activity. The market experts believe that the company’s shares could be well-positioned after Q4 earnings but an increase in expenses is likely to hinder the bottom-line growth.
Few of the market analysts believe that the company has room to improve in the second half of 2020 backed by incremental contributions from major events like the Olympics and easier comps. However, top-line growth is likely to continue falling due to the negative impact of its mobile application promotion advertisements.
The company, meanwhile, continues to be strict in the research and development investments as the previous years’ investment showed a decline or marginal rise in the R&D. Twitter continues to face stiff competition from other social media players who tend to produce more lucrative ad products and new consumer products for marketers and audiences.
In order to recover from the stock slump, Twitter might need to attract users and increase advertiser interest in improving its top-line growth. The company still expects to succeed in achieving user activity metrics and increasing total advertising revenue by banning political ads. This is likely to yield better in the long term but could turn fatal in the short.