So Why Should Investors Care?
There are two reasons why investors should care, one more obvious, and one, a little less. As Adam Grossman of Middleton & Company rightly highlighted, stock options form a big part of the compensation for executives of companies based in the Valley. He makes the compelling argument that not as many executives would quit if they thought the stock price was headed higher. The recent exodus, he believes, is a reflection of the perception that Twitter is nowhere near turning the corner. And while a lot of Twitter investors are still pounding the table for a buyout, these mass exits suggest that a deal may be much farther from fruition than rumor mills have led investors to believe over the past few months.
In this context, Patrick Moorhead tables an argument that’s hard to refute. While Moorhead does believe that “Twitter’s ultimate spot is going to be inside of another company”, he raises the valid concern that Twitter might be a tad too big for that to happen right now. Start-ups have to either grow really big, or remain relatively small, for them to be attractive buyout targets. Moorhead rightly points out that, at this point of time, and at these valuations, Twitter is awkwardly placed between those two ends of the spectrum.
Last but not the least, the rather frequent changes in key personnel have a very real impact on shareholders. Going back to the point that Grossman makes, most top execs in the Valley are compensated with generous amounts of stock options, and these constant rejigs only push those costs higher. For instance, Twitter’s CFO Anthony Noto, who is due to take over as COO after Bain’s exit, was offered an additional $12 million in stock, a cost which wouldn’t be incurred in the normal course. Stock based compensation has single handedly denied Twitter (2) the distinction of being a profit making company.
Also Read: The Good And Bad Of Buying Twitter Inc Stock Right Now
To put things into perspective, since going public, Twitter has accumulated GAAP net losses worth $1.9 billion, significantly lower than the company’s $2.3 billion spent on stock-based compensation. In effect, this constant reshuffling of top executives is likely to derail Twitter on its path to profitability, something it aims to achieve in 2017. Another goal that Twitter was vocal about was to curb its stock based compensation expenses. And it seems increasingly likely that developments like these won’t allow Twitter to chase the goals they’ve committed to.
Twitter’s finances aren’t really going anywhere. There’s no flattering growth to speak of. Neither is the company profitable. And with stock based compensation poised to stay where it was, more equity dilution means that investors are effectively holding onto a shrinking share of the pie. Looking for great tech stocks? Check out Amigobulls’ top stock picks (3), which have beaten the NASDAQ by over 111%.
The article Twitter Inc (TWTR) Stock Looks Set For More Pain Ahead originally appeared on amigobulls.com. Watch our analysis video on TWTR.
Amigobulls.com – Watch, Analyze, Invest. Why spend hours putting together numbers you can get in minutes, in one simple video? Our ‘Robo Advisor’ videos give you every number that matters, in 1 minute. Find insightful articles with ideas on investing, top stock picks that outperform the markets, personalized portfolio analysis videos and a whole lot more. Amigobulls.com – Your Friend On Wall Street.
Additional Links
(1) http://www.reuters.com/article/us-twitter-moves-coo-idUSKBN1343N2?ref=il
(3) http://amigobulls.com/stocks-to-buy/top-tech-stocks/?ref=il&ref=im
