Twitter’s Moment is Here

Posted On October 7, 2015 10:34 am

With founder Jack Dorsey back at the helm and some bold initiatives surrounding video, Twitter may finally be ready to leverage its platform to a money making machine.

Everyone agrees that Twitter (TWTR) is a unique and powerful platform. It has so many things going for it except for the ability create a business model to achieve its monetization potential. Investor sentiment has reached a low as shares have dipped below the $26 IPO price in September. I think the low has been put in and good news should start building into the stock prices.

Last week the company finally settled on officially naming Jack Dorsey as permanent CEO. It obviously wasn’t the first choice among some board members and investors but it least it removes uncertainty. And there are those that believe Dorsey as one of the company’s co-founders, is uniquely qualified to lead the Twitter from a geeky messaging tool to a mainstream media platform.

The Moment is Now

Indeed he wasted no time; on Monday the company announced a major product launch and outlined plans to make the platform more use friendly. The product called “Moments” is a video based and will allow publishers to gather tweets around news and events and publish them as collections. Instead of having to sift through hundreds of tweets or dig into hashtags, Twitter users will only have to click into stories organized by topics. It will have a host of “editorial partners,” from major news organizations to sports leagues to NASA.

I rarely tweet but I find Twitter to be an invaluable tool. I have the tab open all day and go there first for both breaking news and searching for stories. For me it’s mostly market related and I understand most people don’t have a need for a constant stream but I think its smart Twitter is finally embracing its strength of being the largest newsroom in the world and is working towards controlling the firehose of information into digestible streams.

A few things had already been in the works that should translate into improved metrics.

It’s partnership with the NFL run for two years and it will produce content such as breaking news and game analysis, highlights from previous seasons and custom game recaps.   As the football season is now underway this is now a showcase and a testing ground for how to simplify and leverage its powerful reach during live events.

Twitter is constantly compared to Facebook (FB) had often mistakenly tried to emulate it, and only in this light can its 400 million plus users be deemed a “failure.” It seems Dorsey will no longer follow that path. The one area it can beat and is far superior as a “social” platform for real time events. Twitter use explodes during global news, sports events or even watching certain television shows. It should own and monetize this real time advantage.

I also expect the Twitter to also begin making more deals and alliances with business such as airlines and hotels for up to the minute deals and create dynamic pricing platforms creating more revenue streams beyond advertising.

The stock appears to have put in a bottom and offers a great risk/reward entry point near the $28 level.

TWTR Chart 10.7.15

Twitter is constantly and unfairly compared to Facebook as if having 304 million active members and growing revenue at a 48% clip is a failure. At this point I think people will once again begin highlighting its potential and if the metrics begin to improve over the next two quarters the shares should run back above the $40 level.

The Trade:

I’m January 2016 calls out right. Specifically;

Buy January $30 Calls @ $2.25 a contract.

This will give plenty of time for the bullish thesis to play and the ability to make adjustments.

Again, I have a $40 price target which would give the calls a value of $10 for 240% gain.

Also, remember Twitter will continue to be discussed as a takeover candidate and if that comes to pass shares it could easily pass $50 a share.

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.