TWTR Stock: Should You Abandon Twitter Inc?

TWTR StockWhy TWTR Stock Dropped 10%

Twitter Inc (NYSE:TWTR) has always lived in the shadows of Facebook Inc (NASDAQ:FB). Both companies announced their earnings last week and the results were predictable—TWTR stock crashed, FB stock soared, and the sky is blue.

As I said, no surprises there…

Twitter delivered $602 million in revenue for the quarter, reflecting 20% growth from the same period last year. On the surface, this might seem like a reason to celebrate. It’s not as impressive as Facebook’s 59% increase, but still, a one-fifth bump in sales is good, right? (Source: “Twitter Posts Second Quarter Results of $602 Million in Revenue,” Twitter Inc, July 26, 2016.)

Here’s the thing, though: it is just on the surface.

If you take a look under the hood, there are some pretty shocking numbers in Twitter’s earnings statement. For instance, monthly active users (MAUs) only rose by three percent from last year. Twitter’s current number still stands at 313 million MAUs.

Unlike Facebook—or Facebook’s properties like “Instagram,” “Messenger,” and “WhatsApp”—Twitter seems to have hit a ceiling in its popularity. It simply can’t seem to break past the low 300-million-MAUs mark, which is why TWTR stock has tanked in recent years.

Despite a significant amount of revenue growth, TWTR stock has declined 63.2% in the last 24 months. By contrast, FB stock has appreciated by 70.6% in the same period.

This has been a trend since both companies premiered on the stock exchange. Facebook has made all the right moves and the right acquisitions and has been rewarded by the market. Twitter’s journey hasn’t been as smooth (to put it mildly).

The company’s subscriber growth has reflected a decreasing amount of enthusiasm for the platform, at least among the general public. There is definitely a decent-sized group of people who love Twitter, but that hasn’t made an appearance on the firm’s bottom line.

In fact, Twitter doesn’t even make profits. It lost $107 million, or $0.15 per share, in the last three months alone.

Many investors find its losses really strange, because Facebook churned out a whopping $2.06 billion in profits last quarter.

What’s strange is that Facebook and Twitter are in the exact same business. They make money by drawing subscribers onto a social media platform, then allowing advertisers a chance to target their audience. It’s a social media/advertising business model.

In that light, TWTR stock and FB stock should have followed the same trajectory. As advertisers embraced social media and mobile advertising, they should have poured money into both companies—proportional to their subscriber bases, of course.

But none of that seems to have happened. Twitter stagnated, while Facebook conquered the entire mobile advertising market. There seems to have been genuine mismanagement of TWTR stock, which likely doesn’t surprise anyone who’s followed the company closely.

Think about it: Twitter launched a live video streaming service (“Periscope”) way before Facebook entered live video streaming, but Twitter failed to really embed it into its core service. It was haphazard and awkward to use, so it never really caught on like “Facebook Video” has.

The Bottom Line on TWTR Stock

I have a pet theory that explains why FB stock and TWTR stock have moved in such different directions: the relationships between founders and CEOs.

Mark Zuckerberg founded Facebook, and stayed on as its CEO. Twitter’s founder, Jack Dorsey, did not. Instead, Dorsey went on to found another startup as TWTR stock collapsed. Last year, he came back to rescue the firm, but if this quarter’s earnings are any evidence, it may be too little too late for Twitter stock.