Investors Quiver Over Twitter’s Shaky Prospects

Twitter shares closed Tuesday at US$43.78, down almost 10 percent, even though the company’s Q3 earnings report, released Monday, showed monthly active users grew 23 percent.

Granted, that was down a tick from the previous quarter’s 24 percent growth — but recall the World Cup was being held at that time, driving user growth explosively. Germany’s win saw Twitter use peak at nearly 619,000 tweets a minute, a new record.

That means Twitter showed solid user growth this past quarter.

Revenue totaled $361 million, up 114 percent year over year, with mobile ad revenue constituting 85 percent of that. However, Twitter’s net loss also was up — $175 million compared to $65 million for the same period a year ago.

Earnings per share were 29 cents, compared to 48 cents during the same period last year.

CEO Dick Costolo expressed confidence in Twitter’s ability to build the largest daily audience over time.

Laying the Groundwork

Twitter is investing heavily in the future. During the past quarter, it launched its largest update so far for the iPhone. Plus, it built new customer experiences around the NFL and introduced several new advertiser tools.

The company also expanded to additional markets in Europe and Latin America, and it held its first mobile developer conference, Flight, at which it unveiled the Fabric SDK and a new Twitter SDK.

During the quarter, Twitter closed the acquisitions of three companies: payments infrastructure firm CardSpring; mobile retargeting and re-engagement advertising company TapCommerce; and video editing and distribution platform SnappyTV.

So Why Are Investors Singing the Blues?

Analysts have expressed concerns about timeline views per user, which measures engagement.

They slid 7 percent worldwide to 636, and in the United States by 6 percent to 774. Overall, the 181 billion total timeline views registered during the quarter amounted to slightly less than what analysts had expected.

“Twitter users spend only 5 percent as much time on the site as Facebook users do on Facebook,” Barry Randall, a technology portfolio manager on Covestor, told the E-Commerce Times.

“Asking Twitter users to stay longer would be like complaining that people don’t spend more time with their toaster,” he continued.

“In the end, ad dollars are a function of total timeline views,” Randall explained. “If Twitter users are checking timelines less and less, the quality of the experience is clearly not improving for them.”

TwitterMothra vs. Facebookzilla

“Hundreds of millions of Facebook users have years of accumulated content that represents their lives and interests,” Randall said. “Twitter is, by comparison, a pulpit from which one can shout — but not a place that stands in for its owner.”

Twitter and Facebook need to engage their audiences differently and be used by marketers differently, said Andreas Scherer, managing partner at Salto Partners.

While Facebook needs to keep its audience on the site, Twitter “can engage users via desktop and mobile. It also can extend its reach by giving marketers the ability to embed Twitter and Twitter ads into their respective apps,” he told the E-Commerce Times.

However, Twitter “has not figured out how to do all of that,” and that’s the nature of being on the cusp of innovation, Scherer said.

Bullish or Bearish?

Some financial advisors have suggested investors sell their Twitter stock, but “it’s a little early for doom and gloom,” Scherer suggested. “There is a lot of potential for the company to get this right.”

Investors with a more strategic vision will “pick up shares at a discounted price,” he maintained.

On the other hand, Twitter “isn’t ‘buy on the dip,'” Randall said. “It’s ‘only a dip would buy’ into a company trading at over 110 times 2015 earnings estimates — which are almost certainly going to be lowered in the aftermath of this announcement.”

Twitter “doesn’t need to appeal to more people,” Randall suggested. “It needs to appeal more to the people who already use it … because [they] will, through word of mouth and the network effect, be the best recruiters of new Twitter members.”