There is no other way to put it: recent years have been terrible for Twitter Inc (NYSE:TWTR) stock. Since shares went above $70.00 apiece not long after its initial public offering (IPO), Twitter stock has been trending downward. Trading at $16.46 today, the stock is down more than 75% from its all-time high in 2013. Ouch!
TWTR Stock Could Be On the Rise
When a company is smaller than the industry giant and also happens to be growing at a slower pace, markets won’t be nice to it. The harsh reality is that no one remembers second place finishers.
In the most recent quarter, Twitter’s growth was again dwarfed by industry leader Facebook Inc (NASDAQ:FB). Growth in the social media industry is often measured by monthly active users, or MAUs. Twitter’s MAUs increased nine percent year-over-year to 320 million. (Source: “Twitter Q4 and Fiscal Year 2015 Shareholder Letter,” Twitter Inc, February 10, 2016.) Facebook, despite being much bigger, grew its MAUs by 14% year-over-year to 1.59 billion. (Source: “Facebook Reports Fourth Quarter and Full Year 2015 Results,” Facebook Inc, January 27, 2016.)
The situation gets worse when you look at the sequential numbers. While Facebook’s MAUs also showed a quarter-over-quarter increase, Twitter’s numbers stalled. Its 320 million MAUs in the fourth quarter of 2015 were the same as in the third quarter.
The lack of growth has been a major concern for Twitter stock investors. However, if you look past the headline numbers, you’d see that not everything is bad and there’s still hope for the company.
The keyword here is monetization. While user growth has slowed, the company has improved monetization of its userbase. On the advertising front, Twitter’s ad engagements surged 153% year-over-year in the fourth quarter of 2015. The company also has more advertisers onboard. The total amount of advertisers is up almost 90% year-over-year to 130,000. More advertisers and improved ad engagement led to a 48% increase in the company’s advertising revenue.
Data licensing and other revenue also surged 48% year-over-year to $70.0 million. All told, Twitter’s year-over-year revenue growth rate turned out to be an impressive 48%, which by the way, is higher than Facebook’s.
Of course, improved monetization in the past is not enough to cheer up investors. For Twitter stock to really make a comeback, the company has to address its growth issue. Luckily, there are quite a few catalysts that could help Twitter on that matter.
First up is the extension of Twitter’s character limit. Up to this point, tweets were limited to 140 characters. However, the company might be extending the limit to as many as 10,000 characters. This would make Twitter’s platform more appealing to a lot of publishers that are already posting long-form articles on Facebook. (Source: “Twitter Considering 10,000-Character Limit for Tweets,” Re/code, January 5, 2016.)
Algorithmic feed is another way for Twitter to improve its product appeal. In the past, tweets were always displayed in reverse chronological order. Now, after being away for a while, the top tweets you see are those that Twitter believes you care most about. And for those who still want to see tweets the old way, they can easily switch the feature off in the settings.
While some might be unimpressed by the move, one industry expert is saying otherwise. Bret Taylor, former chief technology officer at Facebook, said, “Algorithmic feed was always the thing people said they didn’t want but demonstrated they did via every conceivable metric. It’s just better.” (Source: “Bret Taylor’s Tweet,” Twitter, February 6, 2016.)
In addition, Twitter also owns “Periscope,” a live video streaming app for “iOS” and “Android.” The app fits nicely into Twitter’s product space because of its live and “newsy” feel. Broadcasters would obviously be the potential users of this product, but Periscope could also be a success with content consumers. If the company can convey the value of Periscope to a broader audience, it could become a mass market product.
The Bottom Line on TWTR Stock
There you have it. TWTR stock might be in the doldrums for now, but the company still has a way out.