Twitter Inc is looking like one of the internet firm that were prevalent during the stock market crash of the early 2000’s. The firm remains a large cap social media firm that seems to be growing fast; yet, it has never turned a profit. After reaching an all-time high of $74.73 on December 26, 2013, the stock price has crashed to $26.43.
Twitter is considered a growth firm and the slowdown in its rate of growth was very disappointing. The good news is that the third quarter was the first earnings report since the company rehired one of its co-founders, Jack Dorsey as its CEO. Dorsey was rehired on October 5th after serving as the company’s interim chief since July. Dorsey’s goal is to increase Twitters user growth, and he has said “We need to simplify the product so everyone can get value from Twitter faster.”
The bullish and bearish case for Twitter
A strong debate is ongoing among analysts about the direction that Twitter’s stock will move in the future, but there are strong opinions on either side of the debate. Some are optimistic about the stock. Goldman Sachs analysts Heat Terry wrote “despite the slowdown in MAU growth and 4Q outlook below expectations, we continue to believe the pace of product innovation, including the recent launch of Moments, should improve ease of use and expand the audience.”
While there are analysts that tout the stock, there are those that do not see Twitters stock as a sound investment. For instance, Wells Fargo analyst, Peter Stable notes that the firm is “stuck in neutral” and he thinks “a rich valuation, complexity of the Twitter platform and potential challenges to meeting high investor expectations” will hold Twitter’s stock from advancing.
Regardless of whether you believe that Twitter will turn things around and begin drawing in advertisers, the fact remains that it is losing money, and it is unlikely that will change very quickly.
It has been losing money from its inception and in the third quarter, it reported another loss. The good news is that the company revenues increased by 58% to $569 million dollars. Unfortunately, its net income was $-132 million.
Investors are already giving up on Twitter
The driving force behind Twitters stock price has been its user growth and in the third quarter, it increased its monthly active users (MAU) by only four million. By comparison, the increase in MAU’s in the third quarter of 2014 was 14 million. In the second quarter of 2015, the company also increased its MAU’s by 14 million. Twitter had projected that it would increase its MAU base to 324 million but after the slowdown in growth, it missed its goal by 4 million users.
Even though revenues exceeded expectations of $540 to $560 investors did not respond well to the fact that Twitters user growth slowed. Investors were not pleased with Twitter’s third quarter earnings and the stock price took a 12% hit after the announcement.