Welcome to the public markets, Twitter (TWTR).
Not long ago, you were the darling of Wall Street. Now it looks like TWTR stock is toxic waste.
Well, this is normal stuff for any red-hot, high-profile IPO. It happened to Facebook (FB) and the company made a comeback.
So what can Twitter CEO Dick Costolo do? Here are some things to consider:
Less Focus on Monetization
Yes, this seems kind of strange. But keep in mind that TWTR brought in Costolo because he had a good business background. At the time, this was sorely needed since TWTR was too focused on getting users.
And Costolo has certainly done a great job on the monetization front. For the fourth quarter, revenues jumped by 116% to about $243 million, which trumped Wall Street estimates for $218 million. There was even a net profit of 2 cents a share. During the quarter, TWTR rolled out a variety of ad products like TV Conversation Targeting, Tailored Audiences, Conversion Tracking and Promoted Accounts in Timeline.
The problem is that Costolo has not paid enough attention to user growth and engagement. In Q4, there were only 9 million new monthly active users (MAUs) and a mere 1 million were from the U.S. Wall Street, on the other hand, was expecting 250-million-plus. At the same time, there was a drop off in Timeline views (which is when a person takes a look at the feed), which fell from 159 billion to 148 billion on a quarter-over-quarter basis.
On the earnings conference call, Costolo spent much time talking about monetization strategies. But as for cranking up user growth, his ideas were mostly vague.
Going forward, he needs to change this – and soon. In light of the deceleration in the user base, Costolo will be under lots of pressure to come up with a solid game plan.
Costolo did mention that TWTR has been working on making the user experience easier. But there is still much that needs to be done. As I’ve noted several times on IPOPlaybook.com, I doubt there are many grandmas on the platform. But of course, there are millions of them on Facebook! It’s often a daily habit.
Costolo also needs to provide more details on why TWTR is having issues with users. Is there heavy abandonment? Or is it just to hard to use? Maybe there are certain features that are needed to make it better and more useful?
The problem is that, on the conference call, Costolo provided no details on these matters. It’s certainly a hit to his credibility and points to the idea that TWTR may not even understand the problem.
This is in sharp contrast to Facebook’s Mark Zuckerberg, who was candid about the issues with the service. In several interviews after the IPO, he talked about his mistakes, especially the reliance on HTML5 for mobile devices (it turned out to make the user experience worse).
The Zuckerberg Way
Let’s face it, being the CEO of a hot Internet company is incredibly tough; It’s a pressure cooker. After all, the original CEOs at companies like Zynga and Groupon have been booted.
Yet there is one that has been able to maintain power: Mark Zuckerberg.
Why? A key factor is that he has been able to find a balance between growing a product and monetization.
To make this work, Zuck has generally remained focused on the product and he has relied on Sheryl Sandberg for monetization stategies. Oh, and he gets a lot of help from the CFO David Ebersman.
For Costolo, he needs to build a similar team – that is, bring on a top-notch product person to compliment his business sense. This should be a priority.
Yet there are not many to choose from. No doubt, this could mean that TWTR stock will continue to suffer from an erosion of its user base.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.