Trouble with Bots Is Just One Reason Twitter Inc Stock No Safe Bet

Twitter stock is tethered to the company's ability to change

By Dana Blankenhorn, InvestorPlace Contributor

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Wary of the trouble Facebook Inc  (NASDAQ:FB) finds itself in, Twitter Inc (NASDAQ:TWTR) is in a race against time to save the world from itself and not kill its service in the process. Whether Twitter stock can survive that kind of move remains to be seen.

It claims its efforts against terrorism are working, after killing 1.2 million accounts, because it’s now taking down fewer of them.

But the fight against domestic trolls is more complex. The shooting at Alphabet Inc.’s (NASDAQ:GOOGL) YouTube offices led to a host of fake news links and while the company is working hard to enforce comity, including publicizing its own rules for it, it’s not at all clear that a company built around influencer marketing  can easily separate market influencers from political ones.

The Poison of Social Networking

Like other social networks such as Yelp Inc. (NASDAQ:YELP), Snap Inc. (NASDAQ:SNAP) and especially Facebook, Twitter depends on marketers for its survival. Social networking has taught marketers to have an editorial strategy as well as an advertising one. That’s what “influencer marketing” is all about.

But “influencer marketing” is not just used to sell soap. It’s the primary means by which political ideas of all kinds are sold. The primary feature of Twitter can easily become a poison when applied to politics, as the last few years have demonstrated.

Twitter finds itself in the position of having to change its Application Program Interfaces (APIs) with the aim of reducing the automation of influencer marketing, if it is to maintain the credibility of a service that depends on influencer marketing for its very existence.

While slowly cutting back on the features it offers third-party developers, Twitter seems to be pushing them toward its own service for influence marketing, called Niche. That process has begun by easing out Niche’s founders, who built their service to serve Internet video celebrities, and building it out as a broader service. This is one way to start saving Twitter stock.

Time on Their Side?

Meanwhile the company’s financial performance over the last year has given it time to pursue this new strategy. The company has beaten analyst estimates for the last four quarters running, cutting net losses to “just” $108 million for the year, and this has helped the stock’s price double over the last year.

With a market cap now approaching $21 billion, cash flow positive, and enough cash and short-term securities on the books in December to pay off its long-term debt more than two times over, Twitter stock has financial breathing room.
Its market cap is the largest among the second-tier of social companies, higher than that of Snap, and if buying it weren’t seen as buying political trouble it might make a good bolt-on to either Facebook or Verizon Communications Inc. (NYSE:VZ), which could use it to draw traffic into Oath, the online unit combining the old Yahoo and America Online.

The Bottom Line on Twitter Stock

Twitter seems further along toward cleaning itself up than Facebook, because it recognizes the problem and, being smaller, can operate more freely.

But bots remain a huge problem, with automated accounts still delivering twice as many links to popular Web sites as people do. The company’s efforts to stop the abuse of its “verified accounts” to drive scams is also a work in progress.

The bottom line, then, remains an incomplete. Twitter has recognized its problems, it has moved to address them, but it has not yet succeeded in cleaning up the Twitterverse.

The next step is to clean out problems with real people using Twitter, and access to it, to attack one another.

Until Twitter convinces me it can police people as well as bots, I can’t trust Twitter stock.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.


Article printed from InvestorPlace Media, https://investorplace.com/2018/04/twitter-stock-safe-bet/.

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