New Trade: Long Twitter ($TWTR) & Short Demand Media ($DMD)

avatar By: IS
Date posted: 08.11.2014 (3:00 am) | Write a Comment  (1 Comment)

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Ahhh, today I decided to finally go ahead after hesitating. I’ve been talking about my temptation to trade Twitter and after being a doubter following its IPO, I did finally declare that I was looking for an entry point. Unfortunately, I did not move quickly enough as Twitter announced very solid earnings which caused its stock to jump in a big way. I’m unsure of how I’ll trade it as a longer term speculative pick but for now I’m ready to trade it as a long & short trade. This morning, as you might have seen, I closed out a successful trade on Facebook and Adobe so today’s trade will set me back to 7 live trades, which is currently my maximum. things continue to go well and the portfolio’s return remains above +30% so far this year.

You can also see my long & short trades here:

http://www.intelligentspeculator.net/livetrades

Today,  I’m trading 2 of the higher priced (in terms of P/E ratios) stocks in my portfolio. I feel like one has much more upside than the other so while there is risk involved trading these 2, I do feel like the risk vs. reward ratio is very good. Let’s start off by looking at the numbers:

Ticker
Name
Price
PE Ratio
PE Next Year
Return YTD
Sales Growth
Analyst rating
Book Value
Beta
Revenue/Share
TWTRTwitter Inc42.8195N/A119.11-32.44109.793.545.14N/A3.51
DMDDemand Media Inc10.27N/A149.58-9.693.683.1126.880.7422.29

TWTR Revenue (Quarterly YoY Growth) Chart

TWTR Revenue (Quarterly YoY Growth) data by YCharts

$TWTRLong Twitter (TWTR)

Twitter is a challenging company to analyze but what’s clear to me is that it has a very unique product that is well suited to this new mobile, ecosystem world and despite attempts by the best of the best (Facebook, Google and others), no one has come close to delivering a comparable product. That does seem to indicate that Twitter is well positioned to thrive in this new ecosystem-driven world. It will hurt Twitter’s attempts to branch out through things like Vine, setting up an ad network, etc but even those attempts make a lot of sense and I think Twitter should continue to push forward. How much can Twitter grow from here? I think there’s little doubt that it can generate a lot more money and its increased focus on monetization has already started to pay off. I’m not 100% convinced that Twitter will ever become a product used by the mainstream in the same way that Facebook is but it certainly has a shot and I do feel like those are a few of the reasons that make it possible to justify its sky-high valuation.

TWTR Chart

TWTR data by YCharts

Next earnings release: November 14th 2014

$DMDShort Demand Media (DMD)

Demand Media is a typical Internet 1.0 internet that has helped the company create solid properties such as eHow.com. Unfortunately, most of those properties are losing ground in a world ran by ecosystems and DMD has not been evolving quickly enough. I do expect the decline at DMD to continue if nothing special happens. Can profits return? In the short term yes but that would most likely be about cutting costs and other shorter term actions like spinning off undervalued divisions. I can’t think of one reason that would justify DMD’s current valuation. One question for you. In a world where most users access the web through mobile, through apps, how many apps of this company do you use and how much time do you spend on them?…

DMD

Next earnings release: November 7th 2014

Disclaimer: No positions on Twitter (TWTR) or Demand Media (DMD)

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1 Comment

  1. Comment by Rob — August 13, 2014 @ 10:07 pm
    avatar

    I enjoy the way you describe your reasoning beyond your speculations – particularly when they include looking at the overall position of the company in the market. Although it appears that you do day trades, you consider the long-term success of companies as well.

    I agree with your comments on both Twitter and Demand Studios, and you may be inspiring me to through my investments back in the market!

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