Twitter's trailing 12-month price-to-sales ratio now stands at a laughable 4.7 vs. Facebook at 15.9. The problem for Twitter, however, is that, at about $700 million a quarter in revenue, they are only growing at about 50 percent year-over-year, while Facebook, at $5.8 billion in quarterly revenue for the December quarter, is growing at about 52 percent year-over-year. For high growth, high multiple companies, the slope of revenue growth deceleration is incredibly important, and investors are basically betting that Twitter's is going to drop off a cliff here before the business reaches huge scale. Given its user growth issues, that's not a terrible assumption, and it's scary.
Even worse, it seems Twitter has lost the trust and respect of the market. Meaning, it could post a reacceleration in revenue growth when it reports earnings but because the market does not trust management's ability to execute on product or marketing, they'll assume Twitter stuffed the ad channel on its platform in a one time rush to prove investors wrong about its trajectory.
Analysts are looking for 13 cents on $712 million in revenue in Twitter's earnings report, according to the Estimize consensus from over 300 hedge fund, brokerage, independent, and amateur analysts, slightly above expectations from Wall Street analysts. And, while the Estimize consensus has been more accurate than Wall Street 89 percent of the time, my expectation is that the company misses both of those numbers, and the last chapter of the Twitter saga is at hand. The stock may even react kindly to this outcome as investors begin to assume an activist hunt and an eventual sale at a premium (what that premium is, who knows).