Could the Twitter Stock Price Tank Soon?
There’s no other way to put it: Twitter, Inc. (NYSE:TWTR) has hit a bumpy stretch of road since last summer and the TWTR stock price has crashed as issues continue to mount for the company.
It doesn’t look like 2016 will be a good year for the Twitter stock price, as the social media platform company will need to address some critical issues before moving forward. After a long and careful analysis of the current situation, here are my top reasons for which my Twitter stock price forecast is extremely bearish.
This Could Be Bad News for TWTR Stock
The main problem facing Twitter is that the company has been unable to translate its large user base into a sustainable revenue model. (Source: “Twitter shares fall on revenue forecast, anemic user growth,” Reuters, October 27, 2015.) Now that the company is facing sluggish monthly user base growth, Twitter’s problems surrounding monetization have only gotten more critical for the company’s survival.
Social media platforms are notoriously tricky to monetize; this is a given fact that is hardly confined to Twitter. The uniqueness of this company’s problem, however, is illustrated in the negative movements of the TWTR stock price, which has nosedived by nearly 50% since May of this year. In fact, Twitter stock is having problems remaining above $26.00 per share and is on its way to testing its disastrous August 25 low of $24.38.
Chart courtesy of www.StockCharts.com
It’s at this point that you’re likely asking “how in the world can a company with millions of daily users struggle to stay afloat?” The answer is simpler than you might think, and again, it all comes down to the user base.
Consider the following: Twitter had a monthly average total of users of 304 million by the second quarter of 2015. Despite this being a solid 12% gain over the same period in the previous year, the company has essentially lost all user growth momentum since then. (Source: “What if the Twitter growth everyone is hoping for never comes?” Fortune, October 29, 2015.) In the first six months of this year, Twitter saw its user base growth rate rise by only 0.65%. (Source: “Twitter is a ‘tool for dads’: Analyst,” CNBC, October 26, 2015.)
You didn’t read that wrong. Twitter is simply not seeing any new users join its social media platform and there are some pretty important reasons as to why new users aren’t interested. Navigating through all the various issues has been difficult for both analysts and investors, but here’s why the Twitter stock price could crash even lower than it already has.
Twitter’s Growth Rate Is Slowing Down and Here’s Why
The other big-name social media platforms such as Facebook, Inc. have managed to do well when it comes to attracting teenaged users and maintaining their interest in its social media platform as these users age. This has not been the case with Twitter.
Unfortunately, the bottom line here is that Twitter is increasingly seen as a social media platform used by “old people.” (Source: Ibid.) This is the single most important reason for which the company has been unable to win over younger users, most especially teenagers. Unless this reputation is fixed soon, it will have huge negative consequences for the long-term Twitter stock price forecast.
In fact, a report from the Pew Research Center asserted that out of all the most popular social media platforms in the U.S., Twitter is the public’s least favorite one. (Source: “Mobile Messaging and Social Media 2015,” Pew Research Center, last accessed November 11, 2015.) Leading in popularity is Facebook with 76% of all users reporting they utilize it, Pinterest is second with 31%, Instagram is third at 28%, and LinkedIn is fourth, claiming 25% of surveyed users. What should be extremely troubling for TWTR shareholders is that Twitter is last on the list, with 23% of U.S. adults reporting that they use the social media platform.
There’s no denying the fact that when you compare Twitter and other social media sites, the numbers suggest Twitter really is a site for old people. While teenagers may go to social media to share photos and links with friends, older users see it as a more business-oriented tool and go to Twitter for its professional links and information-sharing potential. It’s not simply just another digital space in which to socialize with friends and family, but rather a serious forum that has more tangible real-world consequences.
I don’t think I have to spell out how negative this trend is for the long-term Twitter stock price forecast. As people get older, they enter into retirement and leave the workforce. For a company with a user base centered on older folks who often use it for business reasons, the demographic realities of Twitter’s user base are an alarming liability, to say the least.
Translation: Twitter’s user base growth is stagnating and the existing users may soon have no need for the social media platform.
How has Twitter’s management responded to these realities? What effects will this have on TWTR stock’s price forecast?
Twitter Facing Internal Leadership Instability
To compound the above-mentioned issues, Twitter must also settle its own internal executive issues. There has been a serious shake-up in terms of corporate leadership at the company as Jack Dorsey has returned as CEO. (Source: “Twitter Inc. (TWTR) Q3 2015 Earnings: Stock Plummets By 13 Percent As User Growth Struggles Yet Again,” International Business Times, November 11, 2015.)
That being said, executives coming and going is obviously just a regular fact of corporate life. However, when you have some of your most senior executives leaving, the resulting instability can translate to a lack of direction for the company. (Source: “Twitter CEO Search Gains Urgency as Stock Slips, Executives Exit,” Bloomberg, September 2, 2015.) But in addition to high-level management shuffling around and leaving, Twitter has also experienced high employee turnover rates, lingering questions over valuation, and half-hearted strategies for attracting younger people to the site. Together, these factors don’t instill much confidence in the company’s long-term performance.
What’s the Bottom Line for the Twitter Stock Price?
While Twitter remains a formidable company with strong growth potential, the negative factors I outlined above must be addressed before the TWTR stock price can head anywhere north of $30.00 per share. The chronic issues of stagnant user base growth and a rapidly aging existing set of regular users will remain and will make questions of monetization still more difficult.
When considered in this context, it’s perhaps unsurprising that Twitter’s leadership is in a bit of turmoil. It’s for these reasons that I continue to be very bearish on the Twitter stock price.