Micro-blogging social media company Twitter Inc (NYSE:TWTR) has seen an impressive rally over the past year. TWTR stock rose to $45 per share in a matter of months after investors started to see some potential from the little blue bird when it finally returned to profitability during the final quarter of 2017.

Now the big question on investors’ minds is whether or not the stock can keep rising. While some are calling for TWTR to make its way above $50, I’m not so optimistic. Although I’m willing to admit that CEO Jack Dorsey and his team have made some impressive improvements to the company’s operations, I think there are underlying problems that could eventually bring the stock back down to earth. 

What Twitter Is Doing Right

There’s no doubt that at least part of the TWTR stock rally is founded. For one, the company has become a leaner organization whose efficiency is helping it book profits. I wrote back in February that cutting spending is certainly not a sustainable way to generate profit — and I stand by that. However, efficiency is also a key part of being a successful business. For that reason, the cost-saving measures have been met with enthusiasm. I applaud Dorsey’s cost-cutting efforts — so far they look to be paying off. If Twitter’s future bets pay off, I think conservative spending will only help propel the company further forward.

Speaking of future bets, you can’t argue that Twitter is just sitting around letting the world pass by. The social media site has been wheeling and dealing to create a unique platform that will attract new users and hold on to existing ones. A big way TWTR has been doing this is through its video offerings. The firm has made deals with everyone from Walt Disney Co (NYSE:DIS) to Major League Baseball and Soccer to stream exclusive content for its users. 

The hope here is that advertisers will be willing to pay more to get their brand front-and-center for these unique offerings. As Twitter fleshes out its platform and appeals to more users with its video content, the company is hoping not only to up its user numbers, but improve engagement and make advertising on the platform more effective, thus allowing the firm to charge top-dollar for ad space.

Where Twitter Will Struggle

There’s only one problem with this plan — Twitter’s user numbers. Although the company has managed to eek out growth among its monthly active users, that growth has been lackluster at best. That’s problematic because it looks like the firm is starting to plateau when it comes to new users. Whether or not the company is inking deals that make its site more appealing, advertisers will look at this trend and worry. As about 90% of TWTR’s revenue comes from advertising dollars, investors should be looking at this trend and worrying as well.

Sure, there’s the argument that marketers are looking to spend outside of heavy hitters like Facebook, Inc. (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOGL)(NASDAQ:GOOG), but if Twitter isn’t growing, there are plenty of other places they can look.

A Precarious Position

The trouble that TWTR stock investors face now is that the company’s share price is on a high, based on the belief that the worst is now behind the company. That may well be true, but it could also be a case of excessive optimism. When TWTR stock was trading in the teens, everyone pointed to poor user growth as a reason to be cautious. However, not much has changed on the user growth front. While I’m willing to credit the company for improving its advertising offerings and managing its money more effectively, I’m not sure a 70% lift is deserved without an improvement in user numbers. 

TWTR stock’s loftier share price is based largely on optimism about the future with very few solid financials to back that kind of growth up. That means any bad news regarding user numbers, revenue, poor execution — anything really — can bring the stock crashing down.

The Bottom Line on TWTR Stock

Twitter stock is starting to show signs of life beyond buyout hopes — however, the optimism that sent the stock soaring might be overdone. While I’m willing to concede that TWTR might have a future outside of becoming a takeover target, I’m not convinced that the user growth issues have been solved. Until we can see a tangible improvement in user numbers, I’d refrain from jumping on the bandwagon.

As of this writing, Laura Hoy was long FB.