Twitter is an expensive stock, this portfolio manager says

Twitter’s (Twitter Stock Quote, Chart, News: NYSE:TWTR) share price may have made some impressive gains over the first half of 2018, but with its earnings bolted to the highly competitive advertising space, it’s long-term prosperity is very much up in the air, says Bryden Teich, partner and portfolio manager at Avenue Investment.

Along with the rest of the tech stocks, Twitter certainly has had its ups and downs so far in 2018, but the online news and social networking company has come a long way from its US$15 low a little over a year ago. TWTR closed on Friday at US$36.65, up 2.8 per cent and aided by one report from Wall Street firm MKM Partners which claimed that Twitter will benefit from activity connected to the World Cup, set to commence on June 14 in Russia.

But even as Internet advertising remains currently strong, the fact that Twitter’s bread and butter is so tied to ad revenue puts the company on shaky ground, says Teich.

“It’s not a name that we own. They really hit a wave [after the 2016 US election] where subscriber growth had been growing and their shares have actually benefitted from that. This is actually a tech company that has had positive earnings for a number of years,” Teich told BNN Bloomberg recently.

“Twitter does make a little bit of money, but you’re still talking probably 25x EBITDA and more than 30x earnings,” he says. “I think the other thing with Twitter that becomes an issue is that the advertising space for online digital advertising is incredibly competitive. If you have a positive view of the growth of that going forward, I would rather own something like Google (or Facebook at the right valuation level).”

Last week, Twitter announced new partnerships in Canada with Corus Entertainment and Bell Media, among others, which will see the company offer exclusive coverage of Canadian sports, entertainment and news programming, as the company moves to add more streaming video content to its roster.

“This idea of combining video and conversation is our sweet spot,” said Kay Madati, global head of content partnerships at Twitter, to the Globe and Mail. “When something happens in the middle of a sports game, when something happens at an awards show, Twitter is the first thing that lights up.”

Teich says that as a communication tool, Twitter remains impressive, but owning it long-term could be an issue. “If you wanted to trade it, you’d probably want to buy it at $15 and be selling it here,” he says.