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Is Twitter (TWTR) a Lost Cause?

This is a question Twitter bulls and bears need to start asking themselves after the company’s shocking results have driven the stock lower even further. Twitter isn’t dead, however; this is a $11 billion company, meaning the market still sees it as a more valuable institution than many well-known name brands. Is that large valuation justifiable after the recent 16% drop in the company’s share price?

That used to be a difficult question to answer, since TWTR was unprofitable for every long. And on a GAAP basis it remains unprofitable. But on a non-GAAP basis, the firm earned 57 cents per share. At its current price point, TWTR is priced at a modest 27 times earnings’ multiple—not the cheapest stock in the world, but actually one of the cheapest newer tech stocks.

There’s reason for that low valuation, of course. Revenues rose by less than 1% year over year in the fourth quarter, and actually missed very modest guidance and expectations. Advertising revenues actually fell year over year—and that alone should give investors pause. Digital advertising is growing phenomenally thanks to more and more commerce occurring on digital devices. How much stuff have you bought online over the last year? Think about all of your friends and family—how much more do they use the internet, whether on a desktop or mobile phone device, to aid in making a purchase decision?

What’s more, Twitter is all about finding information. The purpose of the platform is to disseminate info quickly to everyone on Earth for free. That should have some value for digital marketers, so why aren’t they spending more on the platform?

Digging in deeper, there are even more problems. Twitter said in their press release that “total advertising engagements were up 151% year over year.* What does that mean exactly, and why was advertising spending down if “engagements” were up more than double?

There are even more problems. U.S. revenue fell 5% year over year in the fourth quarter, offset by international revenue. International expansion is expected on this platform, which has had faster and earlier adoption in America than abroad. So we should see even more revenue than we’re really getting.

Then forward looking projections are even worse. Fiscal year 2017 revenue growth is expected “to continue to lag that of audience growth” and advertising revenue “may be further impacted by escalating competition for digital ad spending and Twitter’s re-evaluation of its revenue product feature portfolio, which could result in the de-emphasis of certain product features.”

Anyone looking to invest in Twitter needs to look more closely at what all this means. Again, there is even more cause for due diligence than ever before.

That doesn’t mean everyone should have a bearish view on Twitter. The fundamentals are clearly negative, but analysts need to see if fundamentals and the market price are aligned, or if actually there is more potential value in Twitter than market participants are seeing and that deserves a deep value play. But don’t be fooled: this is a value play and not a growth play. With negative revenue growth and projections of negative revenue growth, the investment thesis needs to go beyond the typical story we hear behind tech companies.

Those who have been bullish on Twitter might want to consider a post-mortem on what went wrong with their expectations and the company itself, while Twitter bears need to be cautious that they aren’t missing anything crucial that justifies an $11 billion valuation. Twitter has gotten smaller, for sure, but it’s still a massive company in the eyes of the market. Everyone should look closely at why exactly Twitter is getting that view.