The Great Twitter Hangover

Jacob Harper |

Like many an addiction story, the relationship between investors and Twitter Inc. (TWTR) has never been one marked by propriety or self-control. Since retail investors got their first taste of the social media company they were hooked.

Other social media companies didn’t always do the trick. LinkedIn (LNKD) was too old, too unhip. Facebook Inc (FB) didn’t have that nice mobile presence social media investors crave.

Twitter was the answer. It had everything. It was young. It embraced mobile. Investors pounced right away, buying up everything in sight in a binge of Ozzy Osbournian proportions. Shares went up 75 percent on the IPO. Times were good.

Investors did not sober up. When you’re high, you don’t ever want to come down, after all. Even in the wake of binge, Twitter spiked again. And again. Better targeted ads made Twitter even more powerful, kept investors chasing the dragon of high returns well into 2014.

But the harsh light of day always comes eventually, no matter how much one tries to ignore it away. The wake-up call came in the form of fundamental data dropping cold, hard truth bombs: Twitter’s first ever earnings report. The intervention was brutal: it showed investors that Twitter wasn’t growing like social media companies must. They weren’t dying, but they were stagnating. Furthermore, the company had lost nearly half a billion dollars, twice what had been expected. It was rock bottom.

Investors took one look at Twitter, and they didn’t see a shining social media company worth $40 billion. They saw a monster.

As investors quit cold turkey, Twitter bled. When the day’s trading was over, Twitter had lost 24 percent. Brutal losses, especially so for a large-cap company.

But recovery does not mean the end, just a new beginning. Now that the market has presumably sobered up, investors could dabble in Twitter again. But not until the product meets three benchmarks:

One, Twitter must increase customer growth. While monthly users crept up 30 percent, it wasn’t nearly enough. Two, they must make Twitter easier to understand off the bat while retaining its core appeal. If they are ever to get Facebook like numbers they must, as CEO Dick Cosotlo put it, “make Twitter a better Twitter.” And three, if Twitter is to convince investors they deserve a second chance, they absolutely must curb losses. Revenues be damned, a $500 million shortfall is unsustainable.

Investors got hooked on Facebook too before that company entered their “dark period.” After bottoming out, Facebook more than doubled in value in 2013. Twitter could do the same. But , before getting back on the Twitter, investors need the product to be a safer investment. Or this could be a false bottom, and the real crash could still be forthcoming.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 116.94 -0.37 -0.32 554,994
TWTR Twitter Inc. 18.27 0.04 0.20 505,854
LNKD LinkedIn Corporation Class A 195.95 0.01 0.01 35,779
BMRK Benchmark Energy Corp 0.05 0.00 0.00 0

Comments

Emerging Growth

Breathtec BioMedical Inc.

Breathtec Biomedical Inc is a medical diagnostics company. It is engaged in developing & commercializing breath analysis devices for the early detection of infections & life threatening diseases including cancers,…

Private Markets

Snapwire

A peer-to-Peer authentic photo marketplace disrupting the $10B commercial photography industry.

Pinterest

Pinterest is a visual discovery and planning tool. Users ("Pinners") use the site and apps to get ideas for their future, such as recipes, places to travel, and products to…