It turns out Twitter is still what we thought it was: A company having a tough time persuading non-users to give it a try, lashed to an advertising ATM reliant on Twitter die-hards. It's not a fruitful combination.
Twitter, in short, is a wounded bird. The company said on Wednesday that it had about 320 million average monthly users during the last quarter of 2015. That was only about 10 percent more than it had in the period a year earlier. Facebook, which has five times as many users as Twitter, is growing more quickly.
Twitter CEO Jack Dorsey spent large chunks of the company's time with analysts on Wednesday discussing his plans to make Twitter more hospitable for newcomers --and to longtime loyalists. That is a laudable goal , but the company's financial results confirm the existing narrative about Twitter as a company: It's more of a niche plaything that most people can live without rather than a ubiquitous Web service like Facebook and Google that can mint money seemingly at will.
That interpretation has dragged down Twitter's stock market value from nearly $35 billion last spring to about $10 billion -- less than the value of the company that sells Spam. Twitter's shares fell about 2.5 percent after regular market hours on Wednesday, following the release of the latest financial figures.
Months of stock swoon has made an important measure of valuation -- a ratio of the company’s enterprise value to estimated earnings before interest, taxes, depreciation and amortization -- shrink to a bit more than nine, according to Bloomberg data. For each dollar investors are willing to pay for Twitter’s future earnings, they are paying $2 for Facebook's.
Investors are right to worry about Twitter's inability to expand its audience. That's the bar Twitter CEO Jack Dorsey set for himself when he returned to lead the company last year. I argued recently that Twitter and Dorsey should shift investor attention away from this fixation on user growth and to the company's pace of sales growth, which remains faster than just about any technology company of Twitter's size or larger.
But that pace is less gazelle-like now. Twitter’s revenue increased 48 percent in the fourth quarter compared with figures in the period a year earlier. It was the sixth consecutive quarter of slowing revenue growth. Worse, Twitter's forecast for the three months ending in March implies the pace of sales growth will slow even more, to 40 percent at the high end of the company's forecast. That means Facebook -- which has eight times the annual revenue of Twitter -- now has a faster pace of sales growth.
User growth matters because new people mean more opportunities for Twitter to squeeze ad dollars from them. Twitter has -- so far unconvincingly -- said that's not the only path to success. The company has a few options in this regard: Make the service so attractive that current users increase their activity, which gives the company a chance to sell more ads. Or it can crank up the number of ads it shows people, either on Twitter or on other websites or apps where people also see tweets.
The problem is that the company hasn't done enough to prove to investors it can still blossom financially with what looks like stalled user growth. Twitter found ways to show ads to people who poke around on Twitter without ever logging in and therefore don't count as users. Twitter says it believes the people who see tweets are two to three times the number of its reported monthly active users. The company on Wednesday also boasted that many marketers are turning up on Twitter with live-streaming Web videos.
But Twitter hasn't given investors much visibility into how their efforts to lure more marketers is translating into dollars. If sales growth is slowing (albeit still strong), and user growth is evaporating, Twitter is stuck in an unhappy Web advertising no man's land with the likes of Yahoo.
The Web and mobile ad world has become winner-take-all, and the runaway winners are Google and Facebook. The two companies combined brought in 40 percent of all digital advertising in 2015, according to estimates from research firm eMarketer. Twitter’s share was 1.4 percent.
It will be tough for Twitter to be a $25 billion company again -- as it was after its first day as a public company in 2013 -- unless it can crack the advertising big leagues. Unless it can lure more users into its nest, it may never get there.
I wonder whether making Twitter better for die-hards is compatible with making Twitter friendly to people who have never used it -- and wonder why they should bother.
That would be Hormel Foods, for the Spam-ignorant.
Twitter has to make sure the advertisements aren't garbage, too, because for some kinds of ads the company only gets paid if people are curious enough to click on it or otherwise don’t tune it out entirely.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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