Twitter Inc is falling apart right now. Is it time to sell TWTR stock?
- Twitter shows the tell-tale signs of a company that isn't coming back from the brink.
- Facebook has developed a better advertising platform and has the momentum.
- With Twitter's future uncertain, TWTR stock isn't the best stocks to invest your money in.
Twitter (NYSE:TWTR) continues to die a slow death with slowing user numbers, and executives that have been leaving the company in recent weeks. In the immediate aftermath of their CTO and vice president of product leaving, shares fell by 4%. This is incredibly worrying for people who hold shares in Twitter or had them on their radar. Notably, executives leaving a company of their own accord is usually due to upcoming issues, and poor management. Interestingly, these executives are leaving without moving directly to another position. As if all of this wasn't bad enough, Twitter recently announced that it had messed up with video-related advertising metrics. All put together, these factors serve as a warning to investors that there is a storm brewing inside Twitter.
To be frank, Twitter’s issues have been brewing for a while now. I have had a bearish sentiment towards the social media company for many years. This is due to the following reasons:
The company has little data about its users. As a result, advertising on Twitter is only attractive to big companies. As a result, the company is losing advertising revenue to Facebook (NASDAQ:FB).
Twitter is slow to implement changes and respond to social media trends. For instance, when video content took off in 2013, it took Twitter a whole year to fully capitalize. For a social media company which prides itself on updated-to-the-minute-information, this isn’t just ironic, it is also laughable.
In an attempt to post a positive Q3 earnings report, Twitter laid off 9% of staff in its partnerships, marketing and sales departments. One would think that those are the three areas Twitter would want to double down on.
In a stunning bit of news, Twitter announced that it had over-reported video ad views from their Android app. This has reduced the confidence advertisers have in the company. Advertisers rely on metrics in order to change strategy, budget and make important decisions. The current sentiment among advertisers is that if Twitter managed to get ad reporting wrong, what else could they be getting wrong?
Notably, Twitter relies heavily on ad revenue. Therefore, it is vital that the company improves its relationships with advertisers.
In an attempt to stem the tide, and get on the path to profitability, Twitter decided to invest in sports streaming. This was due to a larger than expected demand from advertisers. However, for this to be successful in the long term, it needs to get the consistent backing of advertisers. At the moment, this doesn’t seem like that is happening.
One of Twitter’s main issues is that there is a huge proliferation of bots. As a result, advertisers aren’t sure that all their impressions are going to the right people. Saying this, spam bots exist on other social networks; however, it is more of an issue on Twitter.
Will A Twitter Buyout Happen?
The biggest growth driver for the share price in 2016 was the talk of an acquisition by Salesforce. However, this has fallen through and they are on the lookout for other potential buyers.
Twitter isn’t an attractive acquisition proposition at present. For instance, we are yet to see Twitter make a profit. Therefore, any company looking to buy them would need concrete plans on what to do with the social network. Moreover, a buyer wouldn't have the benefit of acquiring a strong management with a strong track record, as part of the deal. If what we have seen from Twitter is anything to go by, they would have to revamp the entire company- and that includes staff.
It is worrying that TWTR grew in value amidst talk of an acquisition. This shows that investors want a big change and are likely to cash in at the smallest opportunity. Unless Twitter makes some drastic changes, they will suffer with regard to revenue and the share price will plummet. Competitors such as WhatsApp and Instagram are yet to be fully monetized.
In conclusion, if you are still holding onto Twitter stock, it is worth dropping it like something on fire- because the company is burning up from the inside. Taking everything into account, the real value of the share is closer to $13. All it would take is for Facebook to fully monetise Instagram and WhatsApp for Twitter to see their revenue numbers slip.