Twitter Continues Fall Back to Earth

Jacob Harper |

While Facebook (FB) has climbed up the charts, steadily gaining momentum all year, Twitter (TWTR) has done quite the opposite. Coming off a red-hot IPO that saw shares gap over 70 percent on the first day, and continue to rise after that, Twitter has cooled in 2014, shedding 14.38 percent of its value coming into the Mar 13 trading day.

As the two highest volume American social media plays of 2014, Twitter and Facebook are often grouped together in conversation. But the two stocks by no means move in tandem, and over the last several weeks have pretty much performed inversely to one another.

This can most likely be attributed to the company’s approach to the social media industry. In contrast to what Facebook is doing right, Twitter is doing wrong. To wit:

They’re Not Approaching Profitability Fast Enough

In the nascent social media industry, explosive growth is an absolute necessity. In their inaugural earnings report, Twitter grew revenue, but spent far too much money, racking up far greater losses than analysts anticipated. While tech investors are a little more forgiving of losses than many other sector players, a net loss of $511 million (versus $253 expected) coupled with a forward P/E of 253, is simply too much to ignore.  

They’re Not Acquiring New Users Fast Enough

In a conference call following that inaugural earnings report, Twitter higher-ups admitted that they needed to make Twitter easier and simpler to use. While technorati scoff at the idea of a relatively simple service like Twitter being labeled complex, the truth is that user growth rate for Twitter is much slower than what the company wanted, and the main culprit was a lack of adoption with emerging market denizens.

Facebook, on the other hand, has made great strides in tapping into emerging markets –  first with a free, text-only version called Facebook Zero that has proven quite successful, and then with the recent acquisition of messaging service WhatsApp.

They’re Not Diversifying Enough

Facebook is making big purchases like WhatsApp. In conjunction with their acquisition of Instagram, Facebook has shown the ability to diversify their revenue stream past their oriigjhal platform.

While investors have always liked Twitter’s diversification, with services like video app Vine, they’re simply not expanding fast enough to support their rapid valuation rise, with the majority of revenue still coming from three sources: Promoted Tweets, Promoted Accounts and Promoted Trends.

Of course, Twitter could eventually “pull a Facebook,” and reverse their post-IPO slump. But to do that, they’ll have to start looking less like themselves, and more like Facebook.

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. 115.40 0.30 0.26 25,070,364
TWTR Twitter Inc. 17.93 -0.10 -0.55 12,208,682
KLBAY Klabin S.A. (Brazil) ADR (Sponsored) Repstg Unit 9.23 -0.25 -2.64 461

Comments

Emerging Growth

IGEN Networks Corp.

iGen Networks Corp is engaged in investing in and managing for growth private high-tech companies that offer products and services in the domains of wireless broadband, software as a service,…

Private Markets

GoCoin

Blockchain currencies (e.g. Bitcoin) provide a new disruptive way to transfer value between parties over the internet as opposed to going through banks. GoCoin provides online merchants with a suite…

Lyft

Lyft matches drivers using their own personal vehicles with passengers who request rides through the smartphone app, and the passengers pay automatically through the app. When using Lyft, passengers have…