After hours today (Wednesday Feb 10 2016) Twitter announced earnings that beat estimates but user growth is declining. As well the first quarter outlook is below estimates.
The stock is down more than 70% today from its past 52 week high and by tomorrow it appears it will be lower again.
The company needs to rethink its model. Management, for whatever reason, seems oblivious to user needs and wants and that is hurting the company, its stock and users.
My trades setup ahead of earnings, are definitely going to do well tomorrow but it would have been nice to see this company turn in a stellar performance and show real progress. CEO Jack Dorsey came to the company to improve it and that is still nowhere in sight. Maybe they need to rethink what Twitter is and how users, use it.
“Beyond The Friends Approach”
More and more of my friends and associates continue to leave Twitter or use it far less. At one time Twitter was seen as a global community of people conversing on a myriad of subjects that they had a similar interest in. Instead Twitter is filled with spam, endless bickering and often mindless comments for the sake of just saying something. Suggestions for improvements have included such things as “private” chatting to filtering to establishing models for purely business use, young adults, dating to clubs and organizations and more.
Instead Twitter has remained with the approach that everyone should follow and comment on every tweet made whether it is wanted or not. Facebook has taken the approach of “friends” who are invited and share similar interests, friendships and family members. Twitter at one time was touted as the social media that would take human interaction “beyond the friends” approach. The problem appears to be that Twitter does not seem to have a plan on what that meant and how to achieve it.
The problem Twitter is facing is its focus is on revenue from ads while not provide a reason to stay connected.
Facebook is also filled with ads, but it gives a reason for users to stay connected, share comments, pictures and opinions. Facebook grows because it offers value to its users. Twitter does not offer the same level of value. Its value to users is far less.
Trading Not Investing
While revenue numbers show a positive side to Twitter, the company does not meet my criteria for the type of investing I do. Instead it has become a trading product for short trades that can last a few days to just a few hours.
Capital Preservation Is Number One
In my investing, preservation of capital is always the number one concern. Twitter stock is highly speculative at the present time. Present book value of Twitter is $5.65 per share. Cash flow is negative 27.99% and yet the gross margin is 67.39% which means Twitter has a practical revenue model and should be able to build on its revenue and grow the company but until that happens, investors should treat Twitter stock as highly speculative which means caution is always advised and the stock should not be considered for medium or long-term holding.
User Growth Is Paramount To Twitter’s Success
Twitter needs to show increases in users with each quarterly revenue report so that investors can see the growth potential of the company for the future. One of the reasons for quarterly revenue reports are for shareholders to see what direction the company is moving. With Twitte,r revenue reports are haphazard, often pointing in one direction and then the opposite.
In my opinion the quarterly reports from Twitter do not build the confidence that investors need to risk their capital against. Therefore Twitter should be used only as a trading vehicle which is what all my latest trades in Twitter have become. It’s a shame, because Twitter was started on a great idea that never had a plan on how to implement and reach its goals.
At one time it looked like Twitter was going to be another milestone in social media. Instead it looks like Twitter may follow other once great ideas into obscurity. People will still use it but it may never have the impact it could have had.
Having A Plan Is Essential
In my investing I always indicate that having a plan is essential for success. That plan has to be adjusted, tweaked and improved as conditions dictate. That is something Twitter still seems unable to master.