Crash in Twitter Stock Could Be an Opportunity
TWTR Stock Needs to Get These Priorities Right
Twitter Inc (NYSE:TWTR) announced its fourth-quarter earnings on Thursday and reported a decline in advertising revenues, together with the slowest quarterly revenue growth in years.
Twitter stock tanked almost 12% in extended trading, and there are no clear solutions to the problems at the beleaguered social media company.
At one percent, the current quarter witnessed the slowest revenue growth since Twitter went public in 2013. Advertising revenue in the fourth quarter declined and the company said that advertising revenue growth would continue to lag usage during 2017.
The company posted Q4 earnings of $0.16 per share on revenue of $717.0 million, The monthly active users were at 319 million, which is up four percent from a year earlier. TWTR stock is currently trading at $15.65, which is down by five percent.
In its letter to shareholders, Twitter management tried to portray the scenario that the company is being positioned for long-term sustainable growth and generally accepted accounting principles (GAAP) profitability. (Source: “Q4 2016 Letter to Shareholders,” Twitter Inc, February 9, 2017.)
Moreover, in the year 2016, the company’s management tried to simplify the organization to be more focused and efficient, and eliminated investment in the non-core areas of its business.
However, the year 2017 is going to be a big test for investors in Twitter stock, who will want to see the results of these efforts.
After looking at the disappointing advertising revenue growth and the user numbers, Twitter investors are a troubled lot. Is there a future with the company and Twitter stock?
The only plausible future is the one in which Twitter’s user numbers and ad revenue start growing again, and the social media platform becomes free of controversies like abusive tweets, to become a possible acquisition target.
Does it look like Twitter’s management is doing everything possible to reach that target? Through its conference call and the quarterly results, it does appear that Twitter is walking on the right path. However, it may be a long journey before investors can see light at the end of the tunnel.
Making Twitter Convenient and Safer for Users
Twitter has faced criticism before for making the product difficult for users to understand. Moreover, the online harassment issue keeps raising its ugly head every now and then. These issues have hit Twitter stock before.
But in the recent letter to shareholders, the company’s management listed how it has made using the platform more convenient for its users. The company has brought about changes to the “Home” timeline and has launched a number of features to show people the most important tweets first.
These changes have improved retention for both monthly active and daily active usage, and have increased Tweet impressions and time spent on the service.
Twitter management has further said that to build on this progress, it plans to apply machine learning more broadly across the service in 2017. It is critical for the microblogging service to better identify and personalize content that people want to see and deliver it to them as fast as possible.
These steps are likely to improve user engagement, which is the most important factor to attract advertisers. With more advertising revenue, TWTR stock stands to gain more.
In the first quarter of 2017, Twitter also launched “Explore” on “iOS,” which brings together trends, “Moments,” search, and the best of live video. Twitter intends to continue integrating new, dynamic, and personalized content into the Explore experience this year.
The company’s management also took significant steps last quarter to make Twitter safer, reiterating that this was the primary focus in 2017 and that the company is approaching safety with a greater sense of urgency.
In its blog post early this week, the company had announced three changes that would make Twitter a safer place: stopping the creation of new abusive accounts, bringing forward safer search results, and collapsing potentially abusive or low-quality tweets. (Source: “An Update on Safety,” Twitter Inc, February 7, 2017.)
If these efforts start showing results this year and the TWTR stock price remains at low levels, then it may result in renewed buying interest from potential bidders in the media space. The price of TWTR stock has been falling over the last three years, with occasional upticks.
Here is the story of Twitter stock in one chart.
Chart Courtesy www.StockCharts.com
Making Twitter Attractive to Advertisers
Twitter may not show user growth, but it is focused on improving user engagement, which is important for the advertisers. But the company is not disclosing the number of its daily users, which makes it unclear whether to rejoice or doubt the 11% growth number that it disclosed in the results.
In the earnings conference call, Twitter CEO Jack Dorsey talked about how Twitter was investing in machine learning and is searching for ways to engage advertisers. He said that they were investing a lot to ensure that they applied machine learning more broadly around their entire experience.
The company recently hired Jan Peterson to consolidate all of its science efforts, deep learning, machine learning, and artificial intelligence (AI) so that the service could get a lot smarter and provide a better experience for people, show users what’s breaking in real time, and make it easier for people to find out what’s going on in the world. (Source: “Twitter hopes machine learning can save it from oblivion,” VentureBeat, February 10, 2017.)
CEO and COO Anthony Noto was excited about the level of engagement as measured in terms of tweet impressions and time spent. He said that the double-digit growth in tweet impressions for three quarters in a row is impressive.
With so many changes planned and investments to be made, TWTR stock is likely to test its investors’ patience to the hilt. The journey may be painful in the short term as management brings about these transformations, but once things start falling into place, investors could look at big gains.
Twitter is a unique platform and it should not be compared to Facebook Inc (NASDAQ:FB).
The new kid on the initial public offering (IPO) block, Snap Inc., should be treated as another niche player that is popular among a particular demographic. Twitter has not been able to figure out how to capitalize fully on its strengths, but hopefully if the company does that this year, investors in Twitter stock could be pleasantly surprised.
