- Uncertainty continues to loom over Twitter's fate with recent reports of possible buyouts.
- Twitter shares have gradually dwindled in value since the month of April 2015.
- Twitter stock may come across as a bargain, but you'd rather stay away right now.
Twitter Jumps On Takeover Rumors Again
In the past couple of weeks, News Corp was rumored to be mulling a potential takeover of Twitter. However, News Corp offered a public statement that served to refute all claims of any such developments. Now, a recent report alludes to an impending takeover of Twitter (NYSE:TWTR) by private equity group Silver Lake and the popular Silicon Valley investor, Marc Andreessen. Such rumors were however quashed as there was no conclusive evidence to suggest that any form of a deal had been concluded. The recent furor over possible buyouts has resulted in increased uncertainty over the future ownership of the company, which is reflected in the increased frequency of fluctuations in the stock price. For instance, Twitter shares leaped by more than 11% on 1st February 2016 amid reports of the interest from Silver Lake and Marc Andreessen. Understandably, such rumors also create a downside risk when they turn out to be rumors alone.
Twitter's Stock Meltdown
Twitter's stock price has undergone a gradual decline over the past couple of months and is now down by more than 60% from the heights achieved in the month of April last year. This does not make for impressive reading. Investors' concerns are also compounded by the fact that the stock has already fallen by approximately 30% since the start of the new year, whilst rivals such as Facebook have fared much better, recording a 7% rise during the same period. For now, the only thing supporting the stock appears to be rumors of a takeover.
Facebook Is Eating Twitter's Lunch
The increasing frequency with which buyout claims are being made is generally understandable given the numerous challenges that Twitter is facing. To begin with, it is becoming increasingly evident that the company is struggling to attract new subscribers. Further, at present, Twitter currently has a user base of 320 million. This is significantly lower than that of Facebook who have over 1.55 billion users globally. Surprisingly enough, Facebook’s Messenger service has a significantly larger number of users than Twitter, with 800 million users. Likewise, Whatsapp and Instagram boast of 900 million and 400 million users respectively.
It's obvious that Facebook would be a better option for investors who want to invest in the social media space. This is further exemplified by Facebook's recently announced Facebook Sports Stadium. This new platform will provide real-time updates on sporting events occurring across the globe, along with incorporating fan comments, statistics and commentary insights from the knowledgeable sports experts. This new service targets an area which was hitherto Twitter’s forte, ‘live-tweeting’ events, and with Facebook's user base, it could encroach on Twitter’s supposed “territory”. Potentially, the decrease in user engagement on Twitter's platform could negatively impact Twitter's ability to generate greater revenues, apart from eating into its user base.
Conversely, recent moves made by the company itself appear to be antagonizing users of the social platform. For instance, in November last year, the company appeared to streamline itself with its competitors by converting the “favorite” to a “like” button in an attempt to enhance ease of use of the service. The company elaborated on this in a recent blog post by stating that their star button creates an element of confusion for newcomers and that a universal symbol would, therefore, be more recognizable.
The post continued:
You might like a lot of things, but not everything can be your favourite. The heart, in contrast, is a universal symbol that resonates across languages, cultures, and time zones… The heart is more expressive, enabling you to convey a range of emotions and easily connect with people.
This resulted in a severe user backlash as people criticized the move on the basis that Twitter was “losing its uniqueness” and becoming like the other social media platforms. Now the last thing Twitter wants to do is disgruntle or lose its existing users.
In conclusion, the quantifiable facts are hardly encouraging. Even as user growth stalls, Twitter could be losing ground to Facebook. Further, if the stock only finds momentum in takeover rumors, it could turn out be really risky. Twitter must, therefore, do something to buck the recent trend. Until then, you might want to sit out of the Twitter stock.