Twitter Stock Price Went Parabolic But I See 2 Sticky Problems

Summary:
• Elon Musk helped to push the Twitter stock price sharply. Here are the two problems that the company is facing.

The Twitter stock price was the talk of Wall Street on Monday as Elon Musk took a giant stake in the company. The TWTR share price closed at $49.97 and rose by 1.10% in extended hours. This rebound means that the shares have risen by more than 60% from its lowest point this year, bringing its total value to $41 billion. So, is Twitter a good investment?

Can Elon Musk rescue Twitter?

The giant investment by Elon Musk was a sign of confidence in the company. However, Twitter attracts mixed opinions in the analyst community. Some analysts believe that it is an undervalued company that will continue growing in the future. The other camp believes that while Twitter is a good company, its business may have peaked. 

Twitter faces two main challenges. First, it is facing strong competition from the likes of TikTok. This competition is more prevalent among young people. With Twitter known for its censorship, the company has also lost users to platforms like Telegram. Second, Twitter has a monetization problem. While it has millions of daily users, it generates less money per user in ads. 

As a result, Twitter’s growth is worrying. While the company’s revenue rose from $3.7 billion in 2020 to $5 billion in 2021, analysts expect its revenue to be $6 billion this year. There are also hopes that the firm will become profitable after it made a loss in 2020.

Therefore, in my view, I expect that the Twitter stock price will pullback soon as the excitement about his investment fades. Fortunately, we have seen this price action several times before. For example, while the Dogecoin price rose sharply after his investment, it has made a strong pullback lately.

Twitter stock price forecast

The daily chart shows that the TWTR stock price made a strong recovery after Musk’s investments. By doing so, the stock managed to move above the 38.2% Fibonacci retracement level. It also managed to move above the 200-day moving average, which is a bullish sign. At the same time, the Relative Strength Index (RSI) moved to the extremely overbought level of 80. 

Therefore, I expect that the stock will retest the 50% retracement level at $56.25 as the hype remains. It will then resume the bearish trend as this momentum fades.