Twitter, as with all the big social media stocks, represents the latest platform of products that rely more on hype than substance. Twitter, specifically, has lost 44 percetn of its value this year so far. The end of the lockup period, coupled with sell-offs of stocks in the technology sector, have revealed a major flaw in these kinds of shares, but Twitter is not the only loser.
In the past, the growth and decline cycles of highly sought after stocks, such as the “dot coms,” gold and real estate, illustrate investor confidence gone too far when the bubbles burst. While they were peaking, hordes of stakeholders were confident they were going to keep climbing. The cycle of the stock frenzy points out investors desire to continually seek the next big thing. Many stocks that plummeted in value after reaching a fever pitch, are doing better today than they were while on the hot list.
Ludicrous stock valuation adds to the manic atmosphere, even in the absence of earnings; investors seem to be willing to gamble they will come later. Twitter shares lose with social media stocks across the board, but the valuations continue to be grossly higher than can be justified.
Twitter growth has slowed considerably, suggesting the online micro-blogging and social networking site may not achieve mainstream acceptance. Boasting 255 million users seems hopeful, but comparing stocks in the same sector reveal those numbers to be lagging. WhatsApp and Facebook each have 500 million and 1.28 billion users respectively.
A larger and more volatile problem is that the euphoria is fading from these over hyped stocks that continue to disappoint. Even in a company like Facebook, which managed to rake in descent revenue through their mobile advertising campaign, it does not seem to present much hope of an encore. The future of these stocks lies in investors’ confidence that these companies will grow, develop and continue to garner revenue and social relevance.
These trends are not set in concrete, and the future of such investments lies in the creativity of executives running the companies to maintain a stranglehold on the pulse of what people want. The future of the Internet continues to challenge the legitimacy of these types of investments. Trends come and go, but long-term growth and sustained value is greatly dependent on consumer confidence. Online social media may garner large numbers, but revenue, not users, generates stability in a market.
There are massive pushes to make the virtual, online presence of free websites into tangible monetarily relevant stocks. The over-inflated numbers and predictions that push many investors to move on these social media ventures continue to disappoint as losses mount this year. Twitter, having taken a pummeling so far, continues its nosedive even as analysts recommend opposing advice. The propensity for these kinds of investments to become volatile prove how unpredictable these stocks really are. Twitter is not the only loser in this sector, and social media stocks, in general, are a largely unknown entity for the future.
Opinion by J. Benjamin