Twitter’s (NYSC:TWTR) performance on Wall Street is nothing to Tweet about, according to investors. The eight year old company’s flat earnings statements have garnered an increasing lack of respect for the third of the big three or four social media sites, four,with YouTube included.
The New York Stock Exchange traded stock opened off more than 11 percent to a near-record low of $37.91, the lowest since November 25th of last year, when the stock dipped to its previous all-time low of $39.06. This puts the stock well below the $44.90 share price the company picked up on its first day on the Market, November 6, 2013, finishing that day with a market value of $25 billion. (At 3PM, the stock improved to $38.32.)
At its present price point, the company would be valued at $21.1 billion, representing a 15.6 percent loss of equity in just six months, and substantially down from its lifetime high of $73.41 on December 26th of last year, for a paper loss of $35.50 per share over a four-month span for a 51.6 percent loss of equity.
The slide, which began during after hours trading when 11 top analysts downgraded their expectations for Twitter’s shareholders despite a quarterly report that beat the Streets performance estimates, with quarterly revenues of $250 million, beating analysts expectations of just $241.5 million. After one-time deductions, the company reported that it broke even for the quarter, beating the pundits who predicted they would lose three cents a share.
The consensus was that, eight months after going public, the company’s results were just not good enough to justify investors’ expectations that Twitter would take off in the same manner that Facebook has.
The people at Twitter might just be wondering what Wall Street wants after reporting a quarter to quarter improvement in revenues of 119 percent, improving to $250 million from the year ago quarter’s production of $114 million. Advertising revenues were up 98 percent to $1.44 per thousand views and, while the company appears on line to hit its 2014 target of $1.2 billion in revenues. Investors, however, are looking for $1.24 billion.
The one-word answer to Twitter’s management is: more. The sell-off was apparently triggered by Twitter’s failure to increase its growth rate in new users and gain ground on the space-leading Facebook. The U.S. monthly active users (MAU) rate for Twitter up 25 percent year over year to 255 million, a shade off The Street’s expectations of 256.8 million. but membership and traffic figures are only 20 percent of those offered by Facebook.
The key problem appears to be Twitter’s weakness in the overseas market, where active users increased 198 million, slightly below the 202 offshore users expected by the market. The timeline views per month dropped 9.4 percent in year over year comparisons of first quarter performance, indicating that Twitter’s popularity may be waning overseas.
What is wrong with Twitter may have more to do with expectations than with performance. The micro blogging niche that Twitter more or less invented, has become a major resource for people in the limelight – entertainers, sports figures, politicians and especially journalists and other media people, who use Twitter extensively to communicate with their followers. While it is beneficial to have a tribe of trend setters and influence peddlers frequent the site, the fact remains that these may not be the market that advertisers want to reach.
For the first few years that Twitter has been up and running, it has been seen as the province of younger people, many of whom consider Facebook a 20th century relic, but the Tweet is in competition with the device based text message. Before consumers had the ability to broadcast text messages to a group of recipients, Twitter was the only way to reach large numbers of “friends” quickly, but that facility mimics the similar features on Facebook. In effect, the Twitter message, the Tweet, has become an art form in and of itself, with Twitter members striving to communicate their thoughts in 140 character packages that remind some users of the Japanese poetry form of Haiku. The public may, however, have become surfeited with short messages that, increasingly, appear to be come-ons from covert advertisements.
Another issue that may continue to plague Twitter is that it is simply more difficult for them to broadcast advertising messages within the context of the Twitter format, a fact that Twitter has recognized by adding functionality that allows users to insert images and video messages into their tweets.
Twitter is not going anywhere. The company is financially viable, and relatively immune to takeover bids, in part because the founders of the company have expressed the desire to remain independent and, in part, because no one else really wants to buy their model, because they either already have a similar model of their own, or they just do not need the Twitter model.
Twitter’s performance on Wall Street may not be something to tweet about but, right now, the stock is a real bargain. Expect the profit takers to be flushed out of the stock while the bargain hunters prepare to swoop in.
By Alan M. Milner
Look for me on Twitter:@alanmilner