Twitter Inc‘s (NYSE:TWTR) earnings were bad at just about every turn. There really was nothing that investors could get excited about, and worst of all, expectations were already at rock bottom, which further explains the bigger issue.
Fact is that Twitter can’t get out of its own way. We have known for a while that user growth is essentially nonexistent, but some investors have found peace with the notion that Twitter can monetize its user base to produce rapid growth for many years to come.
However, it is now apparent that the wishful thinking is not going to produce actual results for Twitter stock.
Twitter’s Big Problem
First and foremost, the rate at which Twitter’s revenue growth has decelerated suggests it won’t be long until we are talking about year-over-year losses. Twitter grew advertising revenue just 18%, which in the world of social media might as well be below GDP.
What makes these losses so bad is not only that the stage was perfectly set with low expectations to beat estimates and raise guidance, but the fact that Twitter’s recent actions to monetize its business should be working, if the company were still relevant.
Don’t forget that Twitter started showing ads to the 500 million consumers who see tweets but don’t actually use TWTR earlier this year. According to Dorsey, Twitter should have been able to monetize this massive network at half the rate of traditional Twitter users. Yet despite making this move, Twitter stock has gained no momentum, and its revenue growth deceleration during the second quarter is at the same rapid rate as declines over the last 16 months.
TWTR Stock: Is There Any Upside?
This by itself suggests that things at Twitter are much worse than the TWTR stock price even suggests. To monetize such an enormous user base with little revenue effect essentially proves that advertisers are staying far away from Twitter. The only reason advertisers would do so is because engagement is light, or because they no longer see the value.
That in itself is a testament to just how bad it has gotten for Twitter, and how quickly. Yes, there are catalysts in the horizon that are seemingly positive. One is Twitter’s deal with the NFL to stream live games, and its search for other live content. Reportedly, ad spots are oversubscribed. However, those spots are limited and unlikely to be a large revenue driver for Twitter according to analysts at Oppenheimer.
Therefore, when you consider what Twitter stock is paying for live content rights, it will be lucky to break even. Hence, it is hard to see too much value created from video content.
Then, there are those who think there is M&A value. Problem is it is hard to see an acquirer paying even $11 billion for a social media platform with no user growth and dwindling advertising demand. It seems far more likely that the likes of Alphabet Inc (GOOG, GOOGL) or Facebook Inc (FB) would try to compete versus acquire.
The bottom line is that there seems to be little-to-no long-term value in TWTR stock. Furthermore, I question whether Twitter can continue to grow its business, and how much longer until those year-over-year increases become losses.
In the world of social media, you are either moving forward quickly or falling behind just as fast. There really is no middle.
Twitter the Next Myspace?
With that said, the problems that ended up crushing Myspace seem very similar to Twitter.
Myspace desperately tried to change its image when Facebook started gaining ground. It did not work. Myspace tried desperately to launch new products after News Corp (NWSA) acquired it for $580 million. All that did was speed the rate of user losses.
When you look at Twitter stock, you see a company desperately trying to move away from short bits of content to live streaming, downsizing its staff, a revolving door with management and launching products as fast as possible. It’s throwing spaghetti on the wall, praying that something will stick.
Albeit, Twitter is a destination of news and for mass reactions to big events, shows, etc., so there will always be a place for Twitter. However, like Myspace, that place may not support its valuation.
Hence, there are a lot of similarities between Myspace’s fall and what Twitter looks like right now. With Facebook and Google growing stronger by the day, and Microsoft Corporation (MSFT) buying LinkedIn Corp (LNKD), that should really worry Twitter stock owners.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.
