Rumours of acquisition keeps Twitter bullish

The share price of online social networking service provider Twitter (NYSE: TWTR) is rallying for the past one week. There is no official news aiding the rally. The market had a bearish view of the stock, considering the eighth consecutive quarter of revenue decline reported by the company in the last week of July.

Even the fiscal 2016 third-quarter revenue guidance was below the Wall Street’s expectations. Still, the stock reversed made a trend reversal. The analysts attribute the stupendous rise in the share price to a rumour. We believe that the rumour would keep the stock bullish in spite of the issues faced by the company.

The San Francisco, California-based company reported 20% y-o-y increase in the second-quarter revenue to $602 million, but missed the analysts’ estimate of $607 million.

For the Q2 2016, the GAAP net loss of the company narrowed to $107.22 million or $0.15 per share, from GAAP net loss of $136.66 million or $0.21 per share in the similar period last year. The second-quarter non-GAAP net income almost doubled to $92.93 million or $0.13 per share, from $48.52 million or $0.07 per share in the similar quarter of 2015. The Zacks earnings estimate was $0.10 per share for the second-quarter.

Twitter

For the third-quarter, the company anticipates revenue in the range of $590 million to $610 million. The management’s revenue outlook was lower than the Wall Street estimates of $678 million in revenue. However, the stock continues to remain bullish because a majority of market participants and traders now believe that the stock is a takeover target for several companies operating in the social networking arena. There are two important reasons for considering Twitter as an acquisition target. The first obvious reason is the large consumer base. For the quarter ended June 2016, Twitter reported average Monthly Active Users (MAU) of 313 million and beat the analysts’ estimates of 312.1 million MAUs. So, the social media company, which acquires Twitter will have an access to millions of customers.

Secondly, the company entered into several lucrative partnership deals in the past one year. This includes deals with National Football League (NFL), National Basketball Association (NBA), Major League Baseball (MLB) and National Hockey League (NHL). Twitter even made arrangements to relay the US presidential debates. This indicates that the company is becoming a major player in the live streaming service. This is expected to lead to huge revenue growth in the future. Thus, considering the possibility of being acquired by another social networking company, the shares of Twitter remain bullish.

The price chart indicates that the stock has risen in a steep manner in the last few days. On the upside, selling can be expected to emerge at 26. Likewise, support exists at 21. Both the momentum and the MACD indicator reflect bullishness in the stock.

Thus, purchasing a one touch call option with a target price of $26 or lower would enable a trader to benefit from the predicted uptrend in the stock. An expiry date in the final week of October would complement the recommended binary options trade setup.

Chad Simmons

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