Twitter, Inc. (NYSE:TWTR) has gone through a rough time since earlier this summer, as the TWTR stock price has headed south on the back of several major issues that have come to light.
As we head into next year, Twitter will be facing growing problems which could snowball and push down the Twitter stock price. Here are three reasons why I remain bearish on the Twitter stock price forecast going into 2016.
Twitter’s Growth is Slowing
Twitter has struggled to maintain its user base growth rate in the last year, but the reason behind this issue might be simpler than you think.
While Facebook, Inc. (NASDAQ:FB) is still doing very well in terms of the teenage demographic, Twitter’s model has increasingly left it resembling a business tool used by “dads.” (Source: “Twitter is a ‘tool for dads’: Analyst” CNBC, October 26, 2015.) This is the most important reason for why Twitter has struggled to attract new users, and especially those under 20, according to a report by CNBC.
The Pew Research Center published an August report which concluded that among the most popular social media platforms utilized by U.S. adults, Twitter ranks the absolute lowest. (Source: “Mobile Messaging and Social Media 2015,” Pew Research, last accessed October 26, 2015.) Facebook is the undisputed leader with 76% using it, Pinterest claiming second with 31%, Instagram with 28%, and LinkedIn with 25%. Twitter however sits at the bottom of the index, with only 23% of American adults logging in to the site. The user data regarding U.S. teenagers is not as up-to-date with its figures, but 94% of teenagers used Facebook in 2012 while only 26% used Twitter.
When it comes to a straightforward quantitative comparison with other social media platforms, it looks as if Twitter is aimed at grown-up users who view it as a business tool rather than a digital space in which to socialize with others. Teenagers simply prefer to utilize more consumption-driven platforms such as Facebook, whereas Twitter places much of the onus on user-based content generation.
It should go without saying this is a very worrying trend for the Twitter stock price from a long-term perspective. As a population ages and people slip into the retirement bracket, having an older user base which uses your social media platform for business purposes becomes a major liability if Twitter wants to survive.
The realities of this vulnerability have not been lost on Twitter executives, as the company announced last October that it will be cutting 336 jobs, which equals about eight percent of its total workforce. If growth figures like the one above continue, you can expect further job slashing as Twitter restructures itself to offset falling revenue.
That brings me to my next point.
Twitter Has Struggled Over Monetization
Not only has Twitter been unable to grow its user base and appeal to younger people, but it lately also struggled to convert its existing user base into an adequate revenue stream. With monthly user growth rates stagnating, questions over sluggish monetization results have left Twitter with fewer and fewer options.
It should be noted that this issue is in no way unique to Twitter. The monetization of social media platforms has always been a notoriously difficult issue for any company. But times have certainly been especially tough for the company, and Twitter’s stock price shows it. The TWTR stock price has plummeted by approximately 40% since May and is currently struggling to stay above the $30.00 per share mark.
Chart courtesy of www.StockCharts.com
What’s the problem, you may be asking?
The main issue here is much like the one we outlined above, which is that the company cannot even count on a growing user base to build good revenue models. Twitter’s number of monthly average users was 304 million at end of the second quarter of 2015, which represents a 12% rise since the same time period in 2014. This sounds good until you consider that between January and June of this year, Twitter’s user base growth rate stood at an alarmingly low 0.65%. (Source: “Twitter is a ‘tool for dads’: Analyst,” CNBC, October 26, 2015.
Translation: Twitter’s user growth rate has essentially stagnated this year, leaving both investors and analysts alike more than a little concerned about the future of the company’s stock price.
Twitter’s Management is in Turmoil
While some progress has been made in recent months to stabilize its internal management instability, Twitter has experienced some pretty serious leadership issues. While people coming and going is a normal process in any large company, Twitter has an especially rough time with some of its most important decision-makers jumping ship, and others being awkwardly shuffled around.
Both Christian Oestlien and Todd Jackson announced they would be quitting the company earlier in the summer, and an additional important executive, Trevor O’Brien, also announced he will be leaving the social media firm. (Source: “Twitter CEO Search Gains Urgency as Stock Slips, Executives Exit,” Bloomberg, September 2, 2015.) For his part, O’Brien headed Twitter’s most important apps.
With so many important people leaving, the vacuum has led to what amounts to a leadership shakeup. Jack Dorsey returned to the Twitter CEO position as a result. (Source: “Jack Dorsey in the spotlight as Twitter readies for Q3 results,” Yahoo Finance, October 26, 2015.)
But it hasn’t only been the highest position in the company which has been subjected to volatility. Twitter has also seen rising management turnover rates, international questions regarding the company’s true value, and conflicting or altogether contradictory strategies for attracting new and hopefully younger users.
So, What’s the Bottom Line on Twitter Stock?
With an aging user base which is showing signs of serious growth stagnation, as well as questions over monetization, it’s no wonder that Twitter has experienced some pretty rough internal management shakeups. It’s for these three reasons that I remain highly bearish on the Twitter stock price for the rest of 2015 and into the New Year.