Being Rational in an Irrational Market
Updated: Mar 25, 2020
For the past 2 weeks, I've been seeing strange price movements in the market which left me thinking really hard about what is going on?
Below are some examples listed.
Twitter (NYSE: TWTR) ended 2019 strongly with revenue grew by 11% and mDAU by 21%. Stock price rose to $39 but subsequently dropped because analysts estimate the stock to be worth about $36. This was my reaction:
Anyway, I think market didn't like the 20% increase in expenses that Twitter announced as they looked to grow company's headcounts in technical related roles.
Honestly, I didn't think much about this 20% until I came across this article from Seeking Alpha. In short, what the author was trying to say is that Twitter's user growth doesn't match revenue growth. Let's assume that there is a 50/50 chance for Twitter's users to click on ads without considering other factors to keep it simple and every click gives $1.
100 users, 50 of them click on ads = $50
1000 users, 500 of them click on ads = $500
10000 users, 5000 of them click on ads = $5000
Through this simple example, ads revenue should increase according to number of users. Therefore, when number of users have grown by 21%, revenue should grow by the same amount theoretically speaking.
Why isn't it increasing proportionally?
It could be something related to their ads product which explains why Twitter's management decided to increase headcount in technical roles. At this point, we can assume that Twitter is going towards an appropriate direction for further growth.
Altogether, this makes a very interesting hypothesis from these numbers alone which goes to show I have much to learn. Just putting this here for anyone interested in my decision to buy Twitter.
Facebook dropped from $220 region to nearly $200 despite disclosing yet another stellar Q4 2019 performance. I was like:
I mean Facebook itself is an incredibly sticky social media site that has found its way into our daily lives. So much to the extent that it has become a habit for us to surf Facebook whenever there is free time or escaping awkward situations (myself included, checking out fellow investors' opinions).
Nevertheless, there is further growth potential in their Oculus segment and possibly WhatsApp if they decide to monetize it. So not too sure why the reaction, I might be missing something here but I felt it was a good opportunity to start a position.
Another point to note is the amount of cash on hand. Facebook have generated more than 20 billion of free cash flow this year which is a lot of cash to do things with!
Finally, there is Tesla (NASDAQ: TSLA) which I think the chart above is pretty self explanatory. As I'm writing this post, the price has gone up above $900 per share before market opens with forward P/E at 90+ according to Seeking Alpha.
Well, I will just continue to buy on dips and go long term.
I would also like to take this opportunity to mention that this blog has been selected to be featured in Feedspot's list of Top 75 Singapore Investment Blogs! You can see my ranking below: