Since the start of 2015, shares of Twitter (TWTR) are flat compared to a market that’s up a few percent, but TWTR hasn’t gotten there in a straight line. Twitter stock surged in February and continued rising for most of the next few months before a poor earnings report sent shares spiraling down some 25% in short order.
Since then, TWTR has continued to falter by about 7%.
So, what has this once red-hot tech stock dropping like a rock? Well, unfortunately it’s not any one thing — and that speaks volumes to what Twitter will need to turn its shares around.
Here are five things that have been (or currently are) weighing on Twitter stock:
Poor Q1 Earnings Report
The bulk of Twitter’s declines in 2015 came after a disastrous first-quarter earnings report. The Q1 figures, which were due out after the closing bell, were accidentally leaked before the bell — and Wall Street clearly didn’t like what it saw, as shares were belted by 20% before trading was halted.
The biggest culprit was revenues — Twitter reported sales of $436 million, which while up 74% year-over-year, still were lower than analysts’ and its own forecasts. And although Twitter’s adjusted earnings of 7 cents per share beat the Street’s consensus for 4 cents, Twitter posted a GAAP loss of 25 cents (or -$162 million), which was worse than the year-ago period.
In addition to that, management told investors it did not expect to turn a profit in the second quarter and that revenue would be within a range from $470 million to $485 million, well off the $538 million Wall Street was expecting. Twitter’s estimate for the full year was also lower than estimates.
Not a “Fast”-Growing Company
Twitter’s first few quarters as a publicly traded company included new monthly user growth of more than 10% on a quarter-over-quarter basis. However, since Q3 2013, that metric hasn’t risen much above 6%.
Many had once called Twitter “the next Facebook,” but that seems like a stretch — Twitter has just 300 million monthly active users worldwide compared to Facebook’s 1.44 billion, and it’ll be awfully hard to close that gap with single-digit QoQ growth.
That problem becomes even more concerning when you consider Twitter is struggling to turn a profit, and when you consider that a horde of smaller players — including rapidly growing Instagram and Snapchat — are rising through the ranks.
Twitter is in serious danger of losing its appeal before it even monetizes the users it has.
Where’s the Compass?
One of the problems with increasing Twitter’s growth rate is that it’s difficult to tell where Twitter’s going — let alone where it should be going.
Most Twitter users will say “it’s the best place to get news,” but it seems like it’s used for little else, which makes it very one-dimensional — a problem when you have Facebook and other social sites knocking on that particular door as well.
Twitter theoretically could be a place to post pictures (say, Instagram or Snapchat) or just update people on their lives, but for now, TWTR appears to have missed those boats.
As the social media realm stands now, different apps typically are used for just one or two things. If TWTR could bring several sharing media under one roof but still maintain its news-strong front and its ease of use, it would be much stickier and have a wider appeal.
Easier said than done.
Who’s on First?
Of course, it’s hard to have direction when you’re not sure who will be driving the bus.
Longtime Twitter CEO Dick Costolo will be leaving the company in July, with Twitter co-founder and current Square CEO Jack Dorsey taking the reins on an interim basis.
While Dorsey is certainly more than qualified to run Twitter, he currently has a new baby in Square which needs his attention and TLC. But Twitter needs attention and TLC, too, and it’s not being shy about it. Today, TWTR released a statement saying, “the (search) Committee will only consider candidates for recommendation to the full Board who are in a position to make a full-time commitment to Twitter.”
As Fortune points out, there are two ways to take that — either Twitter’s already looking at other options, or it’s telling Costolo that they want him, but he’s got to kick Square to the curb.
Either way, we’re no closer to knowing who’s steering the ship for the long run
Twitter Stock Just Tastes Bad
Wall Street is a fickle place, where a loser can become a winner (and vice versa) in short order. But once a company is slapped with a particular tag, it can take a while for shares to shed an appearance.
TWTR started out publicly traded life as a hot commodity, but for more than a year, Twitter’s dual problems of slower-than-hoped-for user growth and an inability to turn a profit have left a bad taste in Wall Street’s mouth.
Now, investors are merely focused on the question “What have you done for me lately?” and Twitter hasn’t done much.
fickle place. For no good reason a stock can be a Wall Street darling or a dud and once you have been tagged one or the other, you really have to screw up or perform wonderfully to change opinions.
Bottom Line
Twitter stock is at a major inflection point — the company that once looked like it could be the next Facebook very well could be the next MySpace.
The biggest thing that should be on investors’ radar is Twitter’s CEO hunt. A dedicated Dorsey could do wonders for TWTR.
Otherwise, Twitter has to show that it can come up with something new that can draw the interest of non-Twitter users and spark renewed growth in the platform.
As of this writing, Matt Thalman was long FB. Follow him on Twitter at @mthalman5513.
