Will Twitter Stock Rise Along With the 140-Character Limit?

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Shares of Twitter (TWTR) have sunk a sad 42% in the last year, including 20% since I suggested investors stay away in mid-September. As I noted then, a few factors have been to blame for the steep decline, including disappointing user growth and leadership uncertainty.

TwitterNow, Twitter and CEO Jack Dorsey are potentially making one big change in an attempt to remedy said disappointing user growth. As Re/code reported:

“Twitter is building a new feature that will allow users to tweet things longer than the traditional 140-character limit, and the company is targeting a launch date toward the end of Q1, according to multiple sources familiar with the company’s plans. Twitter is currently considering a 10,000 character limit, according to these sources.”

The 10,000 limit is the main detail that has folks talking, as it would represent a dramatic departure from the brevity that’s long defined the micro-blogging site. Tactics such as “tweetstorms” and screenshots have already been used to sidestep the 140-character limit, though. Plus, reports say Twitter will still encourage brevity and maintain a timeline feel via a “read more” button for longer posts.

Will Higher Limits Attract New Users?

Still, the main question being raised is whether the feature would alienate core users and erase the site’s core differentiator? That’s concerning, considering the main motivation is to attract new users. There’s a good chance, it seems, that all this work could lead to simply adding a feature that trades in users with one kind of blogging experience preference for another, as opposed to fueling the kind of growth needed to truly turn Twitter around.

However, this might be an optimistic way to look at things. Considering the crowded, fast-paced nature of social media, there’s also a chance that this could totally undermine Twitter’s market share. Consider many of the ways Twitter has climbed to its existing level of popularity: By running along the bottom of news websites and being featured at sporting events, for instance — things that couldn’t take place with 10,000 characters in the mix.

The upside to longer tweets, of course, is that users may actually spend more time inside the mobile app or on the desktop site, which could be a boon to ad revenue.

But once again, the upside that could come from users spending more time on the site may not be enough. The general trend for ad revenue is down, which has been weighing on Google, for instance, a company with a far larger user base and plenty of other revenue streams.

That’s part of the reason user growth is so important — and part of the reason it’s so concerning that, apparently, the only way to get more users is to change the very foundation Twitter was built on.

These concerns don’t even consider the ugly fundamentals I’ve cited before. Twitter stock is trading for a multiple of 39 times forward earnings, for example, despite the ugly stock decline and thanks, in part, to falling earnings estimates for next year.

Add it up and my stance on Twitter stock remains the same: There are far better places to put your hard-earned money. There’s no point in bottom-fishing this sinking stock, even considering chatter around a higher character limit.

Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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