Elliot Turner presented his in-depth investment thesis on Twitter (NYSE: TWTR) at Wide-Moat Investing Summit 2017.

Mark Zuckerberg once said that, “[Twitter is] such a mess, it’s as if they drove a clown car into a gold mine and fell in.” There is much truth to this. Twitter is one of the most unique and irreplaceable online platforms, yet it has failed to earn a profit since its public debut. Today, Twitter trades at capitalization levels first reached in 2011 or 2013–a time in which it had 1/5th the revenue base. Twitter was rewarded with a rich valuation merely for the “attention” it could command across its user base. This was before there was a business attached to it. Starting points and narrative matter for the perceived value of any company. Investors and analysts, many of whom were active users of Twitter, staked their dollars and reputation behind the young, public Twitter only to be left burnt and frustrated. This has led a vocal contingent of frustrated stakeholders with respect to the platform and stock alike.

The lack of profitability, to date, has been the combination of choice and accident: choice insofar as the company sees a long runway of potential opportunity and wants to capture all of it as quickly as possible; accident insofar as the growth in user-base and revenues stalled before most expected it would. There are signs that the trough of disillusionment will soon end as growth in the user-base has re-accelerated and management has pledged a new discipline with respect to expenses and product development. What Zuckerberg initially observed has not been lost, but the delivery date on the promise of being a profitable entity has been delayed. While people focus on the litany of mistakes plaguing Twitter since going public, the company has cemented its central role in media as one of (if not THE) primary distribution channels with crucial advantages in speed and reach that others cannot compete with. News breaks on Twitter and anyone whose voice needs to be heard in any context needs to maintain a Twitter presence. This makes the company an important strategic asset, with a revenue base that could be reasonably profitable were management to so choose. With the stability of the user-base clear and once again growing, the company will benefit from the luxury of time to figure out yet more things. At recent prices, the stock has thoroughly discounted a multitude of known negatives, leaving contrarian investors a good opportunity to think about what can go right, how much profit the business can drive, and what returns on invested capital could look like for either a public Twitter or an acquirer.

About Elliot Turner:

Elliot is a managing director at RGA Investment Advisors, LLC. Prior to joining RGA, Elliot was a principal and managing director at AustinWeston Asset Management LLC, a value-driven investment management firm, where he specialized in discovering and analyzing long-term investment opportunities and strategic portfolio management. Elliot holds a Juris Doctor from Brooklyn Law School, and is admitted to practice law in New York State. He also holds a Bachelor of Arts degree from Emory University where he double majored in Political Science and Philosophy.

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