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Twitter is gearing for a fight.

June 6, 2014

Market analysts tend to be a happy bunch of Wall Streeters out to help companies in distress look better to investors. About Twitter, almost all of them agree that Twitter will do fine in the long run.  At least half of them say that Twitter share price will soon climb to $40.  Analysts have ESP of sorts. Twitter is not that predictable. The only stable trend is that 27 experts like you to Hold Twitter shares, a form of recent consolidation when Wunderlich changed his mind from  Sell to Hold and Stifel from Buy to Hold.

Let’s do a psychological analysis of sort: As an investor I will always focus on predicting the day I buy Twitter shares with the lowest risk of losing and the highest probability of gaining. That is a given. What happened so far? Q1 penny earnings moved from -02 estimate to +02 actual. Share price went up because analysts shifted their estimates. This fickle behavior didn’t impress me. Q2 earnings went from -03 estimate to 0 actual, a greater improvement but stocks went down. This lackluster performance may have galvanized Q3 estimate to repeat the move into positive territory at predicted earning of +1 to 3 penny, but share price may go down because it went up prematurely by expectation before,which will provide space and impetus for Q4 to do better than all the previous quarters. But, penny’s are peanuts. Investors put on the pressure for dimes. Twitter bought Namo Media with borrowed money and made mobile advertising easier with a borrowed platform. If this artificial do or die attempt to get at least 5% of the mobile ads pie portion fails, investors may react by selling Twitter down to its IPO price. Twitter can’t afford anymore improvements in negative territory. The earnings in the next 2 quarters must be in positive territory. Q3 earnings come out on July 21. Do I know the Q3 results? Honestly I don’t , but judging by Costolo’s effort to do better than before, share price in the third quarter may beat estimates by a penny or 2 or even 3, enough for investors to keep the game focused on Costolo. Costolo is under enormous pressure to perform from 2 sources: Investors will sell if he fails and Jack Dorsey may take over. The Twitter co-founder is close to the age of peaking performance (40-50) while Costolo (50-60) is passing the peak. Jack the co-founder may want to be CEO at a certain point of entry (similar to the move by Mr. Page at Google). The name of the Twitter game is cool waiting! google doubled afterwards with the CEO an original founder.

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