Twitter Shares Are Declining Over Questions of Leadership and Revenue
Twitter, Inc.’s (NYSE:TWTR) shares were crushed this week after Citigroup analysts reduced their price target and downgraded Twitter stock to “neutral-high risk.”
You might be tempted to think this is the main reason for the Twitter stock price tanking on Friday, but there’s more going on behind the scenes than you might think, and it’s going to push TWTR prices even lower.
The Twitter stock price has been volatile to say the least. TWTR has swung wildly from a high of about $76.00 per share to its current level of $25.94
The Twitter stock price movement has now broken through the bottom resistance established during the recent market correction in August. Perhaps more worrying is that the very next bottom resistance of around $24.00 is now in danger of breaking. The psychological importance of such a move is important; if the Twitter stock price caves under pressure and falls below that crucial level, there will be no bottom resistance to prop it up.
Translation: nobody knows just how far TWTR stock could fall.
Can Anything Be Done to Save Twitter Stock?
Twitter finds itself in an awkward position from a technical point of view at the moment. The recent damning forecast by Citigroup indeed contributed to Thursday’s and Friday’s TWTR price drop, but wider financial market volatility is also playing a substantial role. (Source: The Wall Street Journal, last accessed September 25, 2015.)
Still, the realities of Citigroup’s announcement can’t be ignored: Twitter stock is still overvalued, and the company’s fundamentals certainly don’t help matters.
Of course, Twitter has done an admirable job of correcting its cash flow situation. But the central issues of slumping user growth and general lack of engagement are major problems which could spell disaster for Twitter stock in the future. (Source: Financial Times, last accessed September 25, 2015.)
And we haven’t yet even addressed the leadership issues. Twitter still does not have a permanent CEO to lead the company, despite it operating in an industry which demands strong, competent, and above all consistent leadership if a company has any hope of succeeding.
The social media platform saw its CEO Dick Costolo step down, adding a certain degree of internal panic about Twitter’s future. (Source: Forbes, last accessed September 25, 2015.) Twitter has attempted to shoehorn Jack Dorsey into the CEO position, but he appears to be too focused on his other project, Square.
Before Twitter can even begin to find its footing and turn its recent troubles around, and certainly before investor confidence in the TWTR stock can be restored, the company will have to commit to long-term leadership.
The biggest issue is again questions surrounding long-term user growth, and a re-examination of Twitter’s revenue model and gross profit margins. (Source: Twitter, last accessed September 25, 2015.) Twitter lacks innovation as of late, stemming partly from questions of corporate direction, but also that there is still no grand strategy for how to go forward.
Where is the Twitter Stock Price Heading, Then?
Now, it would be difficult to overstate the problems faced by Twitter stock this year, because the company has lost approximately half its value in 12 months. There are of course many analysts and speculators who fancy Twitter stock being undervalued, making it a good bet for a turnaround and profit.
TWTR stock is certainly still a giant, with a market cap worth approximately $18.0 billion. And though the company has made strides in improving monetization, glaring holes remain. Twitter is still a money pit, burning through cash at an alarming rate, with operating margins of -26%. (Source: Google Finance, last accessed September 25, 2015.)
I don’t know about you, but that doesn’t exactly inspire confidence in the Twitter stock price.
With leadership issues, financial problems, and the TWTR stock smashing through its resistance barriers, it would be difficult to make a bullish case for Twitter stock.
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Now, if the company were led by a visionary such as Elon Musk, whose company Tesla Motors, Inc. is burning through more money far quicker than Twitter, I would be tempted to reserve judgment. But a broken down car without a driver is not one I’d want to hail as my taxi.
With mounting financial issues and the leadership deficit I mentioned, one has to wonder what’s going to be holding up the Twitter stock price.
The main fear of a Twitter stock price collapse stems from almost zero user growth, fuelling the idea that Twitter may have hit a plateau in terms of its own growth potential. Some have pointed to competition from Facebook’s Instagram as one of the primary causes of Twitter’s decline. (Source: CBS, last accessed September 25, 2015.) Whereas Instagram allows for sophisticated and innovative picture editing and various filters, Twitter has lagged behind with users unable to modify images before posting them.
If Twitter is to succeed, and if the TWTR stock price is to rise, the company will have to come up with ways to break through the latest growth slump. Twitter must find a way to generate more value for its users, or else the Twitter stock price will continue to nosedive.
It’s for these reasons that I remain bearish on Twitter, Inc., and why my Twitter stock price forecast remains negative into the medium-term.