The only thing that seems be keeping Twitter (TWTR) stock afloat is the buyout that Wall Street keeps hoping for. But even these buyout rumors can only do so much. During the past year, Twitter stock has lost a grueling 55% of its value. That performance compares to a 13% loss for LinkedIn (LNKD) and a 45% gain for Facebook (FB).
Then again, TWTR faces some serious challenges that are unlikely to be solved any time soon. Let’s face it, the track record for turnarounds in the tech sector is awful. Just look at Yahoo! (YHOO), BlackBerry (BBRY) and Nokia (NOK).
Those stories don’t exactly inspire confidence for Twitter.
With the backdrop established, let’s take a look at the main challenges facing TWTR, and what they mean for Twitter stock going forward.
Twitter Stock Challenge #1: User Growth
User growth is the lifeblood for any social media operator. Unfortunately, Twitter’s growth has essentially stalled. During the latest quarter, there was a mere 8% increase, compared to a much more robust 22% in the same period a year ago. Yet other rivals have continued to thrive. In Q3, Facebook saw a 14% increased and LinkedIn’s jumped by 20%.
But when you dig deeper in the user numbers for TWTR, there are other troubling issues. For example, it is far from clear how many of the users are actually real people. There are many automated bots that pump out tweets and there is even a thriving market for fake followers and spam accounts, none of which help Twitter stock.
TWTR has also started including SMS users to bolster its overall numbers. Meanwhile, the company lacks extensive demographic information on its users, making it more difficult for advertisers to target their messages.
Perhaps worst of all, TWTR is woefully behind with video, which has become a must-win market for social media. While the company has found some traction with Periscope, the numbers are still fairly minor, with over 100 million broadcasts. But Facebook hosts 8 billion videos every day and Snapchat logs over 7 billion.
Twitter Stock Challenge #2: Product Confusion
In a recent interview with CNBC, the CEO of Zillow (Z), Spencer Rascoff, had a spot-on analysis of the core problem with the TWTR product. He noted: “The challenge before Twitter is they need to explain to my mom what Twitter is and why she should care.”
The fact is that TWTR is still fairly complex, with retweets and hashtags and an endless stream of content that needs to be navigated.
Granted, the company is making attempts to improve the product experience. Some of the new features include Moments (which highlights certain photos and tweets), Likes (instead of Favorites) and non-chronological tweets. There is even buzz that the 140-character limit will be eliminated.
All good, right? Well, perhaps not. If there are too many changes, then the confusion may just get worse. After all, that was a key reason for the implosion of MySpace.
Twitter Stock Challenge #3: Competition
Twitter’s rivals have been moving aggressively on its turf. Of course, Facebook has been cutting deals with media organizations for content as well as had added features like Facebook Sports Stadium, which allows for real-time conversions.
But Facebook’s Instagram property is also becoming a big-time threat for Twitter stock. The service now counts more than 400 million users, which compares to TWTR’s 320 million.
But it looks like Alphabet’s (GOOG, GOOGL) Google is also making some moves. To this end, the company has developed a real-time system for the upcoming Republican debate. But instead of using hashtags, the Google service will allow users to simply search for information. Given Google’s massive user base and extensive set of properties, the company could certainly put a dent in TWTR’s business.
Twitter Stock Challenge #4: Competition
Turnover in the senior management ranks is always disruptive. And it seems like Twitter is practically a revolving door.
The latest reshuffling came this week — and it was a big one. The departures included Kevin Wiel (product chieft), Alex Roetter (engineering chief), Skip Schipper (a vice president of HR), Katie Stanton (global media chief) and Jason Toff (general manager at Vine). Interestingly enough, Weil is the sixth person to hold the product chief position during the last five years (oh, and he’s leaving to head up the efforts at Instagram).
Granted, the incoming CEO, Jack Dorsey, may be taking swift moves to install his own trusted team. But given the problems that Twitter stock has been facing, it also seems like a good bet that the departures are a sign that the turnaround is far from being on track.
Speaking of Dorsey, he is also the CEO of Square (SQ), which has had a rocky IPO and is suffering from its own challenges. So realistically, how much time can he really devote to get Twitter stock back on track?
Given all the challenges facing TWTR right now, probably not enough.
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.
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