Twitter's stunning turnaround

Twitter is one of the hottest stocks on Wall Street this year -- and now the company is hoping to cash in by selling ...

Posted: Jun 7, 2018 3:18 PM
Updated: Jun 7, 2018 3:18 PM

Twitter is one of the hottest stocks on Wall Street this year -- and now the company is hoping to cash in by selling $1 billion of bonds that can eventually convert into Twitter stock.

The offering is geared toward big institutional investors, such as mutual funds and hedge funds. Twitter priced the offering on Thursday, and shares fell 2.5%, possibly because more stock hitting the market could dilute the value of existing shares.

But make no mistake: The social media platform still has momentum on its side. Twitter's stock is up more than 60% this year, and prior to Thursday's drop, Twitter shares had been on a 10-day winning streak.

Why are investors flocking to Twitter? It looks like Twitter's strategy to embrace live video is a hit with users and advertisers. Twitter reported an actual profit for the past two quarters and user growth has accelerated.

That's why Twitter's stock has easily outperformed top rival Facebook, which is up 6% in 2018, and it's trouncing struggling Snap Inc. The parent company of Snapchat is still down 15% this year, despite a 10% surge in the past week.

Twitter was also just added to the S&P 500, which proves that the little blue bird is now a blue chip American firm that is finally starting to grow up.

Typically, the people in charge of adding stocks to the S&P 500 have been loathe to add companies that are spending recklessly and losing money in the process. Twitter's recent profitability is a sign that it is no longer considered a perennial also-ran.

The S&P 500 inclusion also means that the scores of S&P 500 index funds -- both mutual funds and ETFs -- that track the S&P 500 now have to buy the stock.

Related: After the financial crisis, Silicon Valley overtook Wall Street as the place to be

Still, should investors be worried that Twitter is going to add to its debt load with the $1 billion sale? Not necessarily. For one, this isn't Twitter's first go-around with a convertible offering. It sold $935 million in notes in 2014.

And interest rates are still near historically low levels even as the Federal Reserve has been raising rates and signaling that more hikes are on the way. That's a big reason why many companies have been issuing bonds.

Even the mighty Apple, which has more than $267 billion in cash on its balance sheet, has been taking advantage of low interest rates to borrow more money. Apple's long-term debt load topped $100 billion in its latest quarter.

So what does Twitter plan to do with the money from the bond offering? The company said a chunk of it will be used for "general corporate purposes" -- which could mean more capital investments, acquisitions or even the purchase of other companies.

But if Twitter uses some of the proceeds to invest even more in video and other new features that can help grow the company's user base, than Wall Street may continue bidding the stock higher.

Related: Why a Lloyd Blankfein tweet launched more Twitter takeover talk

It's a stunning turnaround for Twitter, especially when you consider that it wasn't that long ago that some (this reporter included) thought that the other company Twitter CEO Jack Dorsey runs -- mobile payments giant Square -- had a brighter future.

Twitter's market value is now $29 billion, compared to $24 billion for Square. But Square is still doing extremely well too. Its shares are up 75% this year.

In fact, analysts at Bespoke Investment Group pointed out in a recent report that Twitter and Square are even outperforming all the vaunted FAANG stocks this year, with the notable exception of Netflix, which is up nearly 90%. (Facebook, Amazon, Apple and Google owner Alphabet make up the rest of FAANG.)

"How quickly things can change. Jack Dorsey was being heavily criticized for trying to run two companies at once last year at this time. Now? Crickets," the Bespoke analysts wrote.

California Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 779491

Reported Deaths: 14893
CountyConfirmedDeaths
Los Angeles2585166330
Riverside566811153
San Bernardino51750858
Orange516461123
San Diego44007757
Kern31148340
Fresno27487355
Sacramento21171375
Alameda20364370
Santa Clara20129295
San Joaquin19793414
Stanislaus16229329
Contra Costa15640198
Tulare15517256
Ventura12167142
Imperial11534312
San Francisco1064096
Monterey933765
San Mateo9332142
Santa Barbara8803109
Merced8719133
Kings715877
Sonoma6987114
Marin6522112
Solano608555
Madera429658
Placer340741
San Luis Obispo333227
Yolo273253
Butte272033
Santa Cruz21758
Sutter163110
Napa159213
San Benito127211
Yuba11127
El Dorado10584
Mendocino82218
Lassen7310
Shasta66814
Glenn5483
Nevada5035
Colusa5026
Tehama4874
Humboldt4826
Lake43310
Calaveras30513
Amador28616
Tuolumne2204
Inyo18714
Mono1632
Siskiyou1600
Del Norte1351
Mariposa752
Plumas490
Modoc230
Trinity150
Sierra60
Alpine20
Unassigned00
Chico
Clear
79° wxIcon
Hi: 86° Lo: 57°
Feels Like: 79°
Oroville
Clear
76° wxIcon
Hi: 86° Lo: 59°
Feels Like: 76°
Paradise
Clear
79° wxIcon
Hi: 79° Lo: 59°
Feels Like: 79°
Chester
Clear
65° wxIcon
Hi: 73° Lo: 46°
Feels Like: 65°
Red Bluff
Clear
81° wxIcon
Hi: 88° Lo: 62°
Feels Like: 81°
Willows
Clear
79° wxIcon
Hi: 87° Lo: 58°
Feels Like: 79°
A disturbance moved over northern California and the rest of the Pacific Northwest this afternoon. It brought more gusty wind like yesterday, and cooler air, but only isolated rain showers. It will be much quieter this weekend with a late summer warmup.
KHSL Severe
KHSL Radar
KHSL Temperatures

Community Events