Can Twitter Stock Make a Comeback?
Is Twitter Inc (NYSE:TWTR) doomed? That’s a question that has been on the minds of many investors since the social media giant first ran into trouble in spring of 2015.
Twitter stock has taken a beating since then, with Twitter user growth slowing. Where once people rushed to the microblog in waves of millions, now the tide has begun to dry up. Consider that from 2010’s Q1 to 2014’s Q4, the company showed an increase of 10 million monthly active users every quarter except one.
Every quarter since—from 2015 onward—the company has never made a gain beyond two or three million monthly active users. In fact, Twitter registered a two-million decrease from the end of 2015 into 2016. As you can imagine, the slowing progress has been disastrous for TWTR stock.
But, while things do indeed look bleak for the company, there is hope. The Jack Dorsey Twitter plan may be just what the once-powerful company needs in order to make a resurgence. (Source: “Number of monthly active Twitter users worldwide from 1st quarter 2010 to 4th quarter 2016 (in millions),” Statista, 2016.)
Jack Dorsey, Twitter CEO, has recently bought $7.0 million in Twitter stock, showing immense faith that there is still value in the shares. In fact, this is the first time that Dorsey has purchased shares in his company since being named as interim CEO in August 2015. (Source: “CEO Jack Dorsey just bought $7 million in Twitter stock,” Recode, February 14, 2017.)
The revival of the shares will largely depend on bringing user growth back to the company, which is easier said than done. With so many different companies vying for consumer attention on the market these days, from Snap Inc. to Facebook Inc’s (NASDAQ:FB) Instagram to Pinterest, there’s no dearth of options for today’s social media denizen.
In fact, some of these aforementioned companies are learning from Twitter, but not in the way you think. Snap Inc. has reportedly avoided putting emphasis on user numbers and growth going into its slated March initial public offering (IPO), wanting to avoid some of the pitfalls that TWTR stock encountered when it went public and then was unable to perform up to its valuation.
So what is the Jack Dorsey Twitter plan for 2017?
The Jack Dorsey Twitter Plan
Twitter has certainly tried a number of different methods to try to come out of the doghouse. From deals with the National Football League (NFL) to provide live streaming rights to Twitter to becoming more politically focused to initiating protections for users against online abuse, the company has been in search of a feature that could once again raise the platform back to prominence, to no avail. (Source: “Even Trump and NFL Can Not Save Twitter,” Business 2 Community, February 20, 2017.)
To understand how Dorsey views the company’s current difficulties, consider a recent talk that the Twitter CEO delivered during a panel discussion at Goldman Sachs Group Inc’s (NYSE:GS) annual technology conference in San Francisco.
He claimed that “focus and discipline” were missing in Twitter’s approach to user growth. Naturally, investors are eager to hear what Dorsey thinks went wrong with Twitter’s strategy, and how he plans to right the ship. (Source: “Jack Dorsey: Twitter Lacked ‘Focus And Discipline’ For Growth,” Forbes, February 16, 2017.)
Dorsey went on to explain that Twitter tried to be too many things to too many people. The company should have prioritized Twitter’s actual users and limited product exploration instead of focusing on people who weren’t on the platform.
“We saw hundreds of use cases over the 10 years, and we tried to do all of them,” said Dorsey. “And that just didn’t work.”
He went on to explain more in-depth some of the mistakes the company made.”In the past we over-indexed into the folks we don’t have, so really focusing on the customers that we do have and making Twitter better every single day for them has helped our rigor and our execution and engineering.”
As for the future, Dorsey said that the company is now on a path with greater “discipline and rigor to build toward a more predictable growth model.” (Source: Ibid.)
Twitter registered a net loss of $167.0 million in its latest quarter, which is worse than the year-earlier loss of $90.0 million in the same period. And it doesn’t seem like those losses will slow down anytime soon. COO Anthony Noto said at the same conference that the company will need to rethink its revenue-generating products and “de-emphasize” some. So don’t expect TWTR earnings to be in the black any time soon.
Dorsey hasn’t gone too much into specific features and additions that the company plans to make in order to invigorate TWTR stock, but he did put an emphasis on machine learning and artificial intelligence (AI), two huge technological pushes that other top tech firms have also been looking at to revolutionize their online platforms. (Source: “Jack Dorsey is ready to give Twitter an AI makeover,” Mashable, February 15, 2017.)
Regardless of the flagging growth numbers, Twitter remains as relevant as ever in terms of public discourse. In fact, the advent of President Donald Trump’s obsession with doling out policy and admonishment in equal measure over the platform has put a spotlight squarely on the microblog.
While the Twitter-in-Chief’s love of tweeting has yet to yield any discernible benefits for Twitter stock, people are definitely bound to be drawn to check the site more often now that one of the most powerful people in the world is on Twitter day and night.
Not to mention that the platform has impacted the way we practice politics in the modern age. Take, for instance, the new burden that a 22-year old Swede is facing now that he’s been put in charge of his country’s Twitter account in the age of Trump. (Source: “It’s a weird time to be in charge of Sweden’s Twitter account,” The Verge, February 20, 2017.)
But, despite Twitter playing an outsized role along with Facebook in shaping not only the political debate but also the information we receive, the company has still been unable to translate into revived user growth. And that’s a problem.
All the publicity in the world means nothing if you can’t turn that cultural moment your company experiences into cold hard results. Up to this point, Twitter stock has failed to do that.
But that brings us to another potential avenue for Twitter to regain its value: an acquisition.
Multiple companies have been rumored to be interested in gobbling up Twitter. Rumors have abounded that some of tech’s biggest names are in the market to buy Twitter, from social media rivals like Facebook and Google (part of Alphabet Inc (NASDAQ:GOOG) to telecom giants like Comcast Corporation (NASDAQ:CMCSA). (Source: “Who will buy Twitter? We ranked all the possible buyers,” Recode, September 14, 2016.)
A merger would obviously see a spike in Twitter stock value, especially if the purchase is made by one of the bigger and more trusted names in the industry like Facebook. However these are all just rumors at this point, and no major move has been made recently, at least publicly, to acquire the social media company.
Should You Invest in Twitter Stock?
The inner workings of the company aside, the fundamental question boils down to this: is Twitter a good investment for 2017?
While the company has certainly seen a decline in value over the years, that could make TWTR stock a valuable buy if it is indeed on the cusp of a resurrection.
Looking at TWTR earnings, the picture is bleak. The company is not profitable and doesn’t really have a path toward profitability. Which is fine when growth is up but, with user gains slowing, the two factors have combined to do real damage to TWTR shares.
That doesn’t mean there isn’t a chance for redemption, however. If the company can find a way to bring back user growth or pivot to profitability—or both—the stock could very well bounce back, making the current price in the mid-teens an attractive buy.
The bottom line is that there is definitely potential value in Twitter stock; the operative word being potential. Any one of a successful feature rollout, Dorsey’s moves paying off, or a Twitter acquisition could be huge for investors who get in on the shares while they’re down. On the other hand, if none of these scenarios become reality, then investors may be holding on to a weakening stock bound to get weaker.
For investors interested in going in on Twitter, what they need to weigh is whether they believe that Jack Dorsey can turn Twitter around. Alternatively, it’s also important to keep in mind the issue of whether the company will indeed remain attractive enough to garner serious acquisition bids.
Yahoo! Inc. (NASDAQ:YHOO) might be a good parallel in that it was a former tech giant past its prime struggling to find relevance in the new world. YHOO stock faltered and, no matter what new scheme management cooked up, the company ended up being acquired for a fraction of the value it was worth at the beginning of its attempted comeback.
If Twitter follows Yahoo! down that path, we may be witnessing the slow death of a company that formerly held a spot of reverence in the tech pantheon.
Conversely, if Twitter can avoid the pitfalls and find a way to bounce back to prominence, then now would be an optimal time to invest in TWTR stock. Basically, it’s do or die for the company.
With all this information in mind, the decision falls into the lap of the investor. If you believe in a Twitter comeback, then there may be no better time to invest than right now.