While Facebook, Inc. ( FB) has been at the center of a media storm over data security and a potential regulatory crackdown on social media companies, some analysts say that Twitter Inc (NYSE: TWTR) may have the most to lose from a new wave of data legislation.
Facebook stock has tumbled 16.2 percent in the past two weeks, but Twitter is down 17.9 percent in that same stretch. According to Citron Research editor and activist short seller Andrew Left, Twitter is even more dependent on its customer’s data than Facebook.
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Left says Twitter will generate $400 million in revenue this year from selling user data directly. Twitter’s advertising revenue dropped from $2.25 billion in 2016 to $2.11 billion in 2017, while its data licensing revenue increased from $282 million to $333 million. Twitter CFO Ned Segal has said the company’s data licensing business is “a really high-margin business” for a company that only recently reported its first ever quarterly profit.
“Twitter makes money from selling user data, even from private messages,” Left says.
As if the potential loss of data licensing revenue were not enough reason to avoid the stock, Left says the uncertainty surrounding data regulation may have cost Twitter bulls one of their best arguments for owning the stock. For years, Twitter has been the subject of buyout speculation, but Left says potential buyers will likely keep their distance for now.
“Acquisition by another party is far less likely until these companies clean house with regard to privacy concerns and selling user data,” he says.
Unlike Facebook stock, which is now down 13 percent so far this year, Twitter is still up more than 17 percent in 2018. Left says that Twitter stock is overvalued compared to peers Facebook and Alphabet ( GOOG, GOOGL), which trade at between 16 and 17 times Citron’s 2018 earnings per share estimates. Twitter stock currently trades at about 50 times 2018 EPS estimates.
Even after the recent dip, CFRA analyst Scott Kessler says TWTR stock is still too expensive.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
“We note persistent questions about growth, in part related to competition and execution,” Kessler says. “After recent notable appreciation, especially after the company reported fourth-quarter results, we see the shares as overvalued.”
Citron Research is short Twitter stock with a $25 price target. CFRA has a “sell” rating and $24 price target for Twitter.
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Twitter Inc (TWTR) Has the Most to Lose from Data Crackdown originally appeared on usnews.com
