Twitter Needs To Do Something And Fast

  • Twitter has failed to live up to the hype and earnings expectations.
  • There are failings in terms of the user experience; thereby; increasing the user attrition rate.
  • Twitter has a lot to do in order to keep up with competitors.

When Twitter's IPO went live on November 8th 2013, it came with much promise. In fact, investors in certain circles believed that it was a 'Facebook killer'. As a result, the lack of significant profit generation went largely forgiven. Much like two siblings, investors can't help comparing Facebook (NASDAQ:FB) with Twitter (NYSE:TWTR). On one hand, you have a social media company with soaring revenue and a thirst for diversification (Facebook); on the other hand, Twitter has largely remained the same social networking site.

TWTR stock chart

Source: Twitter stock price data by amigobulls.com

When we consider that the social media industry is highly competitive, it is baffling that Twitter hasn't continually refined its product in order to stay ahead of competitors. Arguably, this is due to a stubborn leadership.

User acquisition and growth

The strength of a social media service lies in its capability to gain new users, retain them, and find ways to increase the time they spend on the platform. Twitter's user growth in Q3 lies at 0.9% (without SMS followers), and although Twitter is coy in releasing engagement figures, we can extrapolate from the growth of its competitors that it isn't performing that well in this regard.

Due to Twitter's lackluster user acquisition, it has become a less attractive place for advertisers. Unfortunately, for Twitter, Facebook continues to expand and improve its ads platform. As is the repeating motif with Twitter, their ads self serve platform remains largely unchanged.

It is my opinion Twitter's refusal to make drastic changes to revitalize the company is driven by a management fear that it will cause millions of users to leave the site.

Twitter's main user retention strategy is to 'encourage' them to follow celebrities, and notable people with a large following. This creates a hierachy similar to the Victorian era. On one side, you have people with hundreds of thousands of followers who have little problems getting their message heard, and on the other you have people who get excited once they get their hundredth follower.

As a social media business, its practices have to be reminiscent of how people interact in real life, and our psychological need to be heard. It is this gaping flaw that is partly responsible for Twitter's relatively low retention rate. Additionally, Twitter doesn't do content syndication very well. If you send out a tweet, no matter how good, and you have few followers, it is easy for it to be lost in the abyss. As a result, Twitter has become a 'holding pen' for audiences gathered on other platforms.

We are yet to see an individual gain celebrity status solely due to their activity on Twitter. That is a problem.

Interestingly, Twitter's biggest strength is in its retweet functionality. In this sense, content syndication is left largely in the hands of users, and this can be a good and bad thing.

This is good because generally speaking good content rises to the top by way of 'crowd power. And bad in the sense that it gives people with sky high follower numbers the chance to bring attention to content that is sometimes fairly average. Until Twitter is able to figure out how to give any user the power to grow their authority on Twitter alone, it could go the way of Myspace. Algorithmic content syndication is something that Facebook is very good at.

Twitter Financials

All isn't negative with Twitter. The company has been able to grow its revenue by 57.6% YoY, and their profit margin in Q3 2015 has increased by 7.7% as compared to Q3 2014. However, as a result of increased expenditure, Twitter registered a loss of 23.1% in Q3 2015. One can argue that this is due to mismanagement or an increasing pressure to spend in order to grow users and revenue.

Moments

A key component of Twitter's standing is the fact that it makes the day-to-day lives of celebrities incredibly accessible. However, celebrities are beginning to move to Instagram and Snapchat in droves.

As a result, Twitter has made an inspired move to release a feature called 'Moments'. This brings together all the most popular tweets across all of Twitter and presents it in a visual fashion. This might be a case of too little too late, but we must wait and see how much it adds to Twitter's revenue.

Conclusion

In conclusion, Twitter finds itself in a fairly tricky spot. Investors are looking to for big numbers in terms of revenue and user metrics. It is looking very likely that Facebook will enjoy a stellar 2016, and Twitter needs to keep growing or risks a significant portion of its investors moving their money elsewhere.

There is a lot to do in order to bring the company on par with the sky high expectations being circulated post-IPO.

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  • I do not have any business relationship with the companies mentioned in this post.
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Comments on this article and TWTR stock

user profile picture
Tim Alexander
bearish
Saying that Twitter is a competitor of Facebook is like saying tomatoes are a competitor of apples. They are very different, and those that call for Twitter to become more like Facebook just don't understand the platform. In fact, as they have rolled out features that look Facebook-ish, users seem to be rejecting them... like changing the "fav" to "like".
2 reply
user profile picture
abdulj
neutral
Hi Tim, in your opinion which ways make them different?
Do share this awesome post