Take a pass on Twitter, this portfolio manager says

It’s been an up and down year for Twitter Inc. (Twitter Stock Quote, Chart NYSE:TWTR) as investors remain cagey on the social media company’s future. Count investment manager Cameron Hurst among the skeptics. Hurst argues that the company’s not being agile enough to keep generating growth.

Hurst says that the problem has less to do with Twitter as a social media platform and more with its inability to stay one step ahead in the fast-moving tech sector.

“To be honest, we’re a little negative on Twitter,” says Hurst, CIO at Equium Capital, to BNN Bloomberg . “Positively, it has a unique value proposition. There’s definitely a place in that social media ecosystem where you see [for example] President Donald Trump communicates this way. It’s a thing.”

“Technically, it hasn’t really checked the box for us, but fundamentally, there’s a bigger problem,” he says. “There’s an investment pace in social media —particularly because of technology— that you have to keep up with, and so how do you keep that up and monetize at the same time? You have to show a better return on investment for advertisers and right now they’re not getting it.”

Twitter stock has had a bumpy ride

Twitter’s ride since its IPO five years ago has been a bumpy one, to say the least. Debuting in November 2013 at $26, the stock immediately shot up on its first day of trading to $44.94 and continued to climb over the following month to a high of $74.73 (all figures in US dollars). But by 2016, TWTR had dropped to an all-time low of $13.72 and would need two more years to hit the $26 mark again, in January of 2018, where the stock continued to rise until by mid-June it hit $47.79, practically a double over six months.

Then came Twitter’s second quarter earnings report in late July, which met analysts’ expectations for earnings per share and exceeded them on revenue but indicated a one-million drop in monthly active users — reporting 335 million versus the consensus estimate of 338.5 million — while forecasting further decreases in MAUs to come. Investor reaction was to drop the share price 20 per cent in one day, with the stock continuing to trend lower since.

Twitter’s management said in July’s Q2 earnings letter that the company had been intentionally diverting resources away from product improvement to grow its user base in order to work on compliance with Europe’s new data protection regulatory regime and improving the general health of the platform by deleting bot and spam accounts.

“You can either stick with your path and stop investing and drive your profitability through the company —that’s an option but not a long-term growth option— or you have to continue to invest to stay relevant. The problem then is it’s hard to drive that return on investment and really deliver to the profit line. So, we’re holding off,” says Hurst.