Even amidst slowing growth, Twitter is having to refund advertisers owing to an ad-metric error. Should you sell out of TWTR stock? Or should you buy the dip?
Not long after Facebook (NSDQ:FB) reported a spate of miscalculations in key metrics, Twitter (NYSE:TWTR) seems to have caught the 'bug'. Late on 22nd December, Twitter announced that it had discovered technical errors which "affected some video ad campaigns" Unlike in Facebook's case though, Twitter's measurement errors will cost the company directly in Dollar terms.
Coming on the back of a long list of recent setbacks, the news comes at possibly the worst time for the micro-blogging site. More so because advertisers allocate sizeable advertising budgets for this time of the year, the holiday season, implying that the monetary impact is likely to be bigger than it would, at other times. And according to Business Insider, the error inflated video ad-metrics by as much as 35% in some cases.
A Costly Bug For Twitter?
According to the announcement by Twitter, the company has already communicated the discrepancy to advertisers. Quoting from the press release, the company said "Once we discovered the issue, we resolved it and communicated the impact to affected partners." And according to Business Insider, which claims to have been informed by a "person familiar with the matter", Twitter has even issued refunds to advertisers.
The micro-blogging platform has reportedly refunded advertisers to compensate the over-billing for video campaigns that ran on the platform between November 7 and December 12. Twitter seems confident that the mess up is a one-off glitch. In its press release, Twitter said, "Given this was a technical error, not a policy or definition issue, we are confident it has been resolved.", referring to the bug in its Android app, which caused the error.
However, the last thing Twitter needed right now, more so after Facebook's fiasco, was an error that even slightly questioned the accuracy of its advertising metrics. And if there was anything that could be worse, it would have to be an error that hurt advertisers. The only real positive probably comes in the form of the prompt action that Twitter has taken to reassure advertisers. Even though these refunds will cost the company a piece of its waning advertising revenue, Twitter has made a bold decision that will inspire greater confidence in the management's integrity, if not in its ad-metrics.
It's worth noting at this point that Twitter does have its fair share of admirers. Take for instance, Larry Kim, a credible voice on digital advertising, who hails Twitter's platform as "the best ad platform you'll find – though ultimately it will depend on what you hope to accomplish."
Are The Wheels Falling Off?
However, from an investors point of view, there's still too much that's going wrong for Twitter. Starting with the executive exodus that many see as a 'brain drain'. In this context, a recent post on Barron's raises an important point. Are these exits "Brain Drain or Restructuring?" Yet, irrespective of which of the two these exits point to, one thing is evident, Twitter has become a revolving door for executives. Far too many executives have left the company in recent times. Among other things, these exits also suggest that a buyout may not be as close as rumor mills have led us to believe in all of 2016. What's more, these exits are very likely to hurt Twitter shareholders, potentially swaying the company from its path to profitability, and preventing it from curbing its notoriously generous stock-based compensation expenses.
The other worrying trend has been the drop off in engagement levels around its live streaming of NFL games. A recent post on TheStreet notes that last week's game between the New York Giants and the Philadelphia Eagles generated "a mediocre 416,000 tweets, retweets and other activity on the social network, according to data from Nielsen released on Friday." These figures represent a sharp drop from the 719,000 interactions generated by "The New England Patriots' 27-0 victory against the Houston Texans on Sept. 22". In recent times, live video streaming has been a major source of hope for those who are betting on a turnaround. Viewed in that light, the numbers are a tad disappointing.
Twitter Buyout The Only Hope?
Everybody who's followed Twitter over the last year or so knows that for every couple of non-buyout related news items about Twitter, there's one buyout speculation lurking around the corner. Not surprisingly, the trend seems likely to continue in 2017. On 23 December, a day after Twitter reported its ad-measurement glitch, Rick Munarriz of The Motley Fool expressed his confidence in the possibility of a buyout in 2017. Munarriz has his "3 Reasons Why Somebody Will Buy Twitter in 2017". And while he says "buyout chatter isn't going to go away until it actually materializes, and it happening in 2017 makes too much sense now that nobody sees it coming.", he also notes that "The social media giant's CTO is leaving, and with it hopes of a quick buyout."
It seems unlikely that a buyout will happen soon. And investors would do well to take a deeper look at the rationale behind buyout speculation, rather than taking every rumor at face value. After all, we have seen more than just a couple of rumors emerge in the last 12 months. However, as Shira Ovide of Bloomberg Gadfly puts it, "just because it doesn't make sense doesn't mean it won't happen." For investors with a risk appetite, TWTR stock could serve as a decent means to bet on a tech buyout. However, more conservative investors would do well to stay away from this stock for now.
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