Is Twitter, Inc. (NASDAQ:TWTR) the Next Zynga, Inc. (NASDAQ:ZNGA)?

TwitterCould Twitter, Inc. Be a Flash in the Pan Like Zynga, Inc.?

Twitter Inc. (NASDAQ:TWTR) has lost more than 50% in value since this time last year. The company has been struggling with negative earnings since its initial public offering. Post its CEO’s departure, the company awaits new leadership to take control of its reigns. TWTR stockholders want to know if the company will ever come around.

To answer this, let’s take some advice from the investment maven, the Oracle of Omaha. Warren Buffett’s investment philosophy is simple: if the company is producing something tangible, is profitable, and you see it to be operating 10 years down the road, it’s a bet you could consider. Sadly, in Twitter’s case, none of these parameters return a response in the affirmative.

Could Twitter, Inc. Be the Next Zynga, Inc.?

We’ve seen a similar case in the past, the classic example of the online web and social media games company, Zynga, Inc. (NASDAQ:ZNGA) which took a dive soon after its IPO and has not recovered since. The problems are common; virtual products, an over-hyped IPO, negative earnings, departing top executives, and the mother of all problems—ineffective monetization and inconsistent monthly active users (MAUs).

The problem with Twitter is not just the product, but how to generate money off of the product. Twitter has lacked in the monetization front. Competitors Facebook Inc. (NASDAQ:FB) and LinkedIn Corporation (NASDAQ:LNKD) initially faced the same dilemma but quickly adapted. Facebook moved in fast following its IPO to monetize mobile, from which it receives the biggest monthly active user base.

Additionally, some of its recent well-calculated moves have also proven a boon to Facebook. The company executives made some smart acquisition picks like Instagram and WhatsApp. Facebook has effectively begun its monetization campaign on Instagram this year by integrating ads in the user’s home feed.

The company is now moving towards monetizing the popular messaging service, WhatsApp. LinkedIn, on the contrary, boasted a differing model of premium services and, despite the recent net figure in red, has been able to consistently generate positive operating income to stay afloat in the market.

But Twitter troubles are far from over; 1) because of an utter lack of corporate leadership and direction; and 2) because of its inability to quickly adapt to varying user preferences resulting in a loss of user base. The looming challenge for Twitter is to somehow increase its MAUs.

The company added only two million to its user base in the most recent quarter, marking its lowest ever addition in five years. The MAU growth is now increasing at a decreasing rate. FB, in comparison, has maintained stellar MAU growth, followed by LinkedIn which still boasts a higher MAU base than Twitter.

Adding to its troubles is a recent move by Apple Inc. (NASDAQ:AAPL) to endorse ad blocking in the new iPhones (6s and 6s Plus). In the age of the smartphones when most of the MAUs on social media invariably come from mobile devices, companies like Twitter (which currently generates 88% of its revenues from mobile ads) stand to face even harder times ahead.

Here’s the Bottom Line on Twitter Stock

If the company’s negative returns and high debt-to-equity are not enough, its executives’ complete lack of trust in the stock further reiterates its weakness. Insider selling has outweighed insider buying by four fold in the last 12 months. It seems TWTR stock could soon meet the same fate as Zynga. I would steer clear of this dud investment.

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