Mobile advertising is one of the fastest growing markets in the world, but it doesn’t seem to be helping Twitter Inc (NYSE:TWTR). Wall Street has been throwing in the towel for TWTR stock. Year-to-date, Twitter stock is off about 17% to $19 … the price was as high as $69 a few years ago.
It’s true that TWTR stock has been a pretty good vehicle for quick-trigger traders who play both the long and short sides of a transaction.
If anything, this will likely remain the case, as volatility appears to be the norm for the Twitter stock price.
But for those thinking of taking a buy-and-hold strategy, this could be dangerous to your portfolio. Whenever a digital company loses its mojo, it is tough to get back into gear. Just look at companies like Yahoo! Inc. (NASDAQ:YHOO) and AOL. In some cases, the outcome is a harrowing death spiral, as seen with the implosion of MySpace.
So why is TWTR stock something to avoid for those who have a long-term bent? Let’s take a look at three key factors.
Twitter Stock Problem No. 1: The User Syndrome
But of course, Twitter has had a much different experience as user growth has stalled. In Q3, monthly active users inched up a mere 3%. By comparison, FB was able to pump up its base by a hefty 16%.
So what is at the heart of the user issues? I think the service is relatively difficult to use. How many people really understand things like hashtags? And can people even explain the purpose of TWTR — especially compared to something like FB?
Besides, it also does not help that the CEO of the company, Jack Dorsey, is on a part-time basis. He also is at the helm of Square Inc (NYSE:SQ).
Twitter Stock Problem No. 2: Monetization Breakdown
The financials for Twitter stock are rapidly deteriorating. In Q3, revenues increased by only 8.2% and the net loss came to $102.8 million. To put this into perspective, the top-line spiked by 58% in the same period a year ago!
It has been a stunning collapse, and there are few signs that the situation will improve anytime soon. The end of the U.S. election will certainly mean less engagement for the TWTR platform. And some of the recent efforts by the company, such as live-streaming of NFL games, have not caught much fire.
What to do? For the most part, Twitter has little choice but to cut back. So the company has recently announced a 9% reduction of the global workforce. But much of this will be concentrated on sales, marketing and partnerships, which are critical for monetization.
Twitter Stock Problem No. 3: Brutal Competition
Twitter still has a large user base, a strong global brand and unique real-time broadcasting capability. But all this may not be enough. Let’s face it, TWTR stock has the perception of being a laggard — almost looking as if it is of a bygone era of technology.
This makes it tougher to attract top-notch employees. In fact, there has been quite a bit of turnover in the executive ranks, with the latest departure being Chief Operating Officer Adam Bain.
But Twitter is also becoming an afterthought for advertisers. All in all, they would rather prioritize their budgets on fast-growing platforms like Pinterest, Snapchat, GOOG and FB.
TWTR stock is also rapidly falling behind in key growth areas. Perhaps the most notable is video. FB, GOOGL and Snapchat are currently the dominant players. In fact, Facebook CEO Mark Zuckerberg recently said that his company is “video first.”
As for Twitter, the company has recently dumped its Vine video property and has struggled with its Periscope.
Given all this, is it any wonder that companies like GOOG, Walt Disney Co (NYSE:DIS) and Salesforce.com, Inc. (NYSE:CRM) decided to pass on the opportunity to buy TWTR? Not really. And this should really be the most ominous sign of the fundamental troubles at the company and the troubles for Twitter stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.