Why Twitter Inc Needs to Stop Playing Politics

Twitter's management needs to be wary of alienating its ideologically diverse user base

By Josh Enomoto, InvestorPlace Contributor

If You Liked TWTR Stock Before, You Should Like It More Now

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For just a brief moment, Twitter Inc (NYSE:TWTR) appeared to be the never-ending gift for investors. On Dec. 19, I warned against getting too optimistic about the quirky social media company. The next day, of course, the TWTR stock price closed at a record high for this year. However, on the last day of trading before Christmas, TWTR shares absorbed a notable correction.

Naturally, investors are curious where Twitter will go next over the coming weeks and months. We know from InvestorPlace chief technical analyst Serge Berger that market technicians anticipate a higher leg up for TWTR stock. Primarily, this is due to the belief that shares have bottomed out, and I agree that the argument looks compelling.

However, I’m not entirely sold on Twitter’s core fundamentals. The company appears to have a sizable user base of 330 million. But in the competitive context, it’s overshadowed by Facebook, Inc. (NASDAQ:FB), and to some extent, by Snap Inc (NYSE:SNAP). Without a persuasive story or a differentiating factor, the TWTR stock price is sure to face upside challenges.

More critically, though, subscriber growth is weak. Even though Facebook has over two billion monthly active users (MAUs), it’s growing faster than Twitter. That’s remarkable since the law of large numbers should work against Facebook; yet the facts are the facts. For instance, in the third quarter of 2017, Facebook had 2.07 billion MAUs. In Q3 of 2016, it had 1.79 billion MAUs.

That’s a growth rate of nearly 16%. In the same time frame, Twitter grew a pedestrian 4.1%. Unfortunately, numbers like this will not do TWTR stock any favors in the long run.

Unfortunately, TWTR Stock Is a Political Investment

Optimists may counter that management implemented multiple improvements to enhance the platform’s usability and attractiveness. One of the biggest changes is Twitter’s maximum 280-character tweet length, up 100% from the prior 140-character limit. I suppose this allows celebs and wannabe-celebs to indulge us with their streams of consciousness.

Whatever. While I appreciate management’s efforts to revitalize the brand and juice momentum for the TWTR stock price, it also needs to streamline its overall strategy. While it pushes for bigger numbers and greater engagement, Twitter can’t afford to tie itself down with unnecessary drama.

Specifically, I’m referring to the company’s political agenda. They play a dangerous game by deeply favoring one side.

Notably, Twitter CEO Jack Dorsey intervened when former Breitbart technology editor Milo Yiannopoulos hurled racist attacks against actress Leslie Jones. Dorsey booted Yiannopoulos from the social media platform. However, the same courtesy was not given when a black rapper attacked a black Breitbart reporter with derogatory, racial epithets.

By only confronting racism directed against known liberals, Twitter signaled that it’s not friendly toward conservatives. As mainstream news companies like USA Today have reported, Twitter has a history of ignoring abuse directed at conservative ideologists.

Our own Ian Bezek reported that Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) is censoring its YouTube platform for offensive content, which invariably includes conservative or right-wing material.

Cynically, Alphabet can get away with it because it’s Alphabet. But TWTR stock will suffer because Twitter is far from immune. If the company takes similar steps like Alphabet took with YouTube (or worse), it’s going to unnecessarily hurt its recovery chances.

TWTR Needs to Be Careful

I don’t like companies that play politics too strongly, irrespective of the opinions stated. Take a look at Target Corporation (NYSE:TGT). The CEO was outspoken about the incendiary transgender restroom issue, and it backfired badly on TGT. Even today, shares have yet to recover.

Hopefully, Twitter doesn’t continue to make the same mistakes, but I don’t have high hopes. The current trend right now is to censor right-leaning speech as “hate speech,” which I find unfortunate. A one-sided conversation is no longer a dialogue, but a diatribe.

But as an investor, you should really be leery of TWTR stock. Its focus right now is to earn new subscribers. Management will not accomplish this goal if it simultaneously attempts to police speech and political views. Perhaps one day, it can do both à la Facebook or Alphabet. Until that time, it needs to put politics on the back burner.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2017/12/why-twitter-needs-to-stop-playing-politics/.

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