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Are Twitter’s Days Numbered?

Posted on Friday, Aug 4th 2017

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Twitter’s (NYSE: TWTR) future continues to look bleak. The financial performance in the recently announced quarterly results may have outpaced market expectations, but other metrics failed to impress. Twitter hasn’t figured out how the social and mobile worlds can be leveraged to deliver a growing business venture.

Twitter’s Financials

For the quarter, Twitter’s revenues fell 5% over the year to $574 million, ahead of the Street’s forecast of $537 million. EPS of $0.12 was also better than the market’s forecast of $0.05 for the quarter. Clearly, its cost control initiatives are paying off. But that is where the good news ends.

Twitter’s monthly user base was flat at 328 million over the quarter, compared with the Street’s estimate of 332.5 million. It recorded a modest 5% growth over the year. When questioned on the investor call, Twitter could not even explain why the user growth was missing. It attributed the flat numbers to “exogenous factors, including fewer events, lower seasonal benefits or organic trends.” Consider Facebook, which in the same climate, recently crossed a major milestone of 2 billion monthly active users by adding 66 million users in the quarter.

Even more disappointing was Twitter’s monthly user base in the US, which fell by 2 million during the quarter to 68 million. This was the biggest decline seen in the US since the company went public. The company did manage to save face by reporting a 12% increase in the daily active user base.

By segment, advertising revenues fell 8% to $489 million driven by a 14% reduction in US advertising revenues. Data licensing and other revenues increased 26% to $85 million. Twitter is counting on its data licensing revenues to deliver a turnaround in the future.

For the current quarter, Twitter forecast an adjusted EBITDA of $130-$150 million, compared with the market’s expectations of $146 million.

Twitter’s Monetization Plans

Despite the results, Twitter continues to experiment with options. To improve monetization, the company recently announced the launch of a subscription program for advertisers. Priced at $99 a month, the program will allow registered advertisers to see their first 10 daily posts automatically promoted. It will promote these tweets based on interest, location, and subscriber preferences. The company will also provide analytics on the tweets in the form of a bi-weekly dashboard with details of reach and engagements. The new service is focused on individuals and small businesses who may not have either the capabilities or the bandwidth to run their own marketing campaigns. The service is currently in beta phase. This could be  promising angle.

Twitter’s Video Focus

It also remains focused on Video. During the quarter, Twitter delivered more than 1,200 hours of live video from its existing and new content partners. It announced 40 live-streaming partnerships, that include tie-ups with two 24/7 networks and 10 international deals. One such deal is with Bloomberg which will allow Twitter to launch a 24/7 global news network. It has also launched a sports network called Stadium.

To improve the user’s experience on mobile, Twitter is introducing a new product called Twitter Lite. The app will use less data than the full platform and will only be available on a mobile web browser. It is meant to drive user growth in countries where Internet service is not as robust.

Twitter’s stock is trading at $16.18 with a market capitalization of $11.8 billion. It touched a 52-week high of $25.25 in October last year and had fallen to a 52-week low of $14.12 earlier this year. The stock is a far cry from its 2013 list price of $26 apiece.

Overall, Twitter’s dismal performance has spurred speculation that the company is now primed to be bought. Possible buyers range from Salesforce.com to Alphabet and Walt Disney Co. All of these companies will benefit from the vast data that Twitter has about its users. Alphabet, for instance, has struggled to set up a social networking service of its own. A Twitter buyout may give it one more chance to try its luck.

There is one other buyer who would be delighted to acquire the company: US President Donald Trump. Unfortunately, that could trigger an impeachment!

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