If the test program goes as planned, this should be a net positive for Twitter revenue. The company currently doesn’t serve ads to these users, a large pool of people that TWTR estimates at 500 million each month.
I understand the temptation to buy TWTR stock after this announcement. Even my colleague, Brian Nichols, thinks the efforts bode well for Twitter stock going forward. The thing is, this move isn’t nearly as impactful as Wall Street — or Mr. Nichols — thinks it is.
In reality, it’s a desperate, shortsighted attempt to boost revenue that could very well damage TWTR’s long-term prospects. Here’s why:
Questions of Value
When it comes down to it, investors need to consider the value this move would add to Twitter stock. To be a logged-out TWTR user, you merely have to see a tweet, which often happens in Google (GOOG, GOOGL) search results or via embeds on other websites or apps.
This means that:
Users will be worth far less to advertisers. Twitter won’t be able to use its data to target logged-out users, and there will undoubtedly be many a disinterested eyeball perusing Tweets without even meaning to. In short, this is a larger — but far less qualified — audience. Former TWTR CEO Dick Costolo said in February the company believes each logged-out user is worth $2.50 per year, far less than the $4.35 annually for the logged-in crowd.
Existing users will be worth less. Some portion of those 500 million logged-out people will already have a Twitter account. If they click on an ad while logged out, they’re far less likely to click again when they’re logged back in. That $4.35 figure is coming down.
If you’re hoping this will help reinvigorate user growth — TWTR’s core problem — you’ll be sorely disappointed. In the ultimate non-sequitur, Twitter thinks this campaign “could eventually translate into a big revenue opportunity and help reinvigorate user growth,” according to IBD.
However, short-term revenue could definitely see a boost. I find it confusing Twitter wasn’t already serving ads to logged-out users, but why would a potentially new user decide to sign up for Twitter now that they’re suddenly being bombarded with ads? That makes no sense.
Bottom Line on Twitter Stock
The only thing that does make sense about this move is that it was done at the behest of Jack Dorsey. This decision reeks of him. Ever since he was installed Twitter’s permanent CEO, he’s made short-term move after short-term move, each a trivial attempt to juice next quarter’s revenue or engagement numbers.
With TWTR stock down 30% in less than four months, I don’t blame him for seeking a quick fix to the share price, but at the end of the day it’s unfair to long-term investors who have yet to see any meaningful long-term initiatives put in place.
Twitter’s flagging user growth is the real problem — not satiating advertisers. If Dorsey continues to pursue a quarter-by-quarter philosophy that ultimately hurts shareholders longer-term, the critics who feel @jack is ripping off investors by splitting his time between Square (SQ) and Twitter will have some real ammunition to work with.
So, don’t get fooled by the latest fix-all from Twitter’s top brass. TWTR stock is still a dog.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at email@example.com.