4 Reasons Why Twitter's Stock Is Back In Favor

Twitter Inc TWTR shares have gained about 67 percent year-to-date and are sitting at a three-year high. The stock was setting fresh highs for 10 consecutive sessions in the run-up to Thursday, when it pulled back on the news of a $1-billion convertible senior note offering.

Twitter stock had been on a secular decline since its listing on Nov. 7, 2013, as it fell from its $44.90 closing price on debut to just over $14 in May 2016. The stock subequently languished below the $20 level until late 2017.

At time of publication Friday afternoon, the stock was trading just above the $41 level.

Source: Yahoo Finance

What has changed since then?

1. Quarterly Results Point To Inflection In Fundamentals

Twitter reported a fourth-quarter profit on a GAAP basis, reversing from a loss a year ago and marking its first-ever profit.

The company also returned to revenue growth for the first time since the 1-percent growth it posted in the fourth quarter of 2016. 

The top- and bottom-line beat in Q4 triggered a 12-percent jump in shares Feb. 8.

First-quarter results reported April 26 show that the turnaround was not a blip on the radar, as the social media platform reported forecast-beating results and a profit yet again.

Twitter said it expects to be profitable in 2018.

2. Momentum In Key Metrics, Content Partnership

Worldwide daily active user growth has picked up pace. Twitter's Q1 report revealed that worldwide DAU growth improved from a mere 3 percent in the first quarter of 2016 to 12 percent, stretching the double-digit growth streak to six quarters.

Monthly user growth is stagnating at 4 percent.

Ad revenue climbed 21 percent to $575 million and data licensing and other revenues were up 20 percent to $90 million.

International ad revenue growth, at 51 percent, outpaced Twitter's U.S. ad revenue growth.

Twitter has made conscientious efforts to improve its user metrics and revitalize ad revenue growth.

Among the changes to its platform: the doubling of its character limit from 140 to 280, which is seen as a positive influence on user engagement.

The company is also notching content tie-ups. Twitter has running partnerships with Comcast Corporation CMCSA-owned NBC Universal and Walt Disney Co DIS's ESPN.

In December, Twitter forged a partnership with Bloomberg Media to launch TicToc, which will stream live video and reporting from Bloomberg journalists worldwide.

See also: Facebook's Privacy Scandal, Part Deux: Company Confirms Data Partnerships With Chinese Companies

3. Facebook's Data Scandal: A Blessing In Disguise?

Facebook, Inc. FB suffered a setback earlier this year, with a data scandal involving 50 million compromised Facebook profiles, a figure that has since been revised upward to 87 million.

Twitter will be a main beneficiary of advertisers leaving Facebook, said Quantum Trading's Sean Udall. The platform could realize more than $400 million from advertisers leaving Facebook, he told Benzinga this year. 

"Twitter will pick up quite a business from Facebook — it will be a small drop in the bucket for Facebook, but it will be meaningful for Twitter." 

4. Addition To Elite S&P 500 Index

Standard & Poor's inclusion of Twitter in the S&P 500 Index became effective June 7. The inclusion of a stock in an index is a major positive, as index-based mutual funds and ETFs will begin accumulating shares to accord it the same weighting it has in the index.

Sell-Side Sounds Cautious Note

The sell-side has taken Twitter's recent outperformance with a pinch of salt. 

KeyBanc Capital Market's Andy Greaves projects multiple challenges ahead, such as weak monetization in the U.S. market amid heavy competition. This is reflected by a 13-percent drop in U.S. average revenue per user relative to 40-percent growth in international ARPU.

Twitter has also been less upbeat on its near-term future, as it suggested tougher comps will growth in the bottom half of 2018.