From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Friday, 31 July 2015

What kind of future does Twitter have?

For those Kat readers who do not actively follow the corporate earnings reporting season, Second Quarter (Q2) results have been coming in for several weeks. While disappointing results by hi-tech behemoths such as Apple and Microsoft have garnered most of the headlines, given the sheer bulk of these companies, perhaps the most interesting dynamic took place regarding Twitter. It is no secret that Twitter has seen ups and downs since its IPO on November 7, 2013, and whispers having been getting louder and louder about whether the company’s business model will meet investor expectations. The Kat question is simple: does Twitter have a long-term future? The answer, based on the words of the company’s senior management following the company’s earnings announcement earlier this week seems to be: at best—maybe.

The summer has been a trying time for the company. The CEO, Dick Costolo, stepped down in June and there was hope that the company’s share price would improve. Add to this the fact that Twitter co-founder Jack Dorsey returned as interim CEO-- but the share price still declined. Then came the release of the Q2 numbers following the close of the share trading day on July 28th. The announcement seemed encouraging, reporting better than anticipated results; the stock price rose almost immediately more than 10% in after-hours trading. However, this was accompanied by the customary earnings call with senior management, the substance of which painted a challenging, if not worse, outlook for the company. Consider the following, as reported here and here:

1. Dorsey began his comments by warning that the company has a long road ahead, stating bluntly:
"We’ll take the necessary time to build the service people love to use every single day, and we realize it will take some time to show results we all want to see.”
The stock price immediately began to fall.

2. Dorsey went on to discuss user growth and audience participation, lamenting that new features such as the Timelines and Logged-Out experiences have not had the desired impact. “This is unacceptable and we’re not happy about it,” he said.

3. Dorsey was followed by CFO Anthony Notto, who was equally, if not even more, downbeat. He noted:
"Specifically, we did not see organic growth, positive seasonality or growth initiatives seen in Q1. As Jack mentioned, we’re obviously not satisfied with these results.”
4. Noto paid particular attention to the metric of monthly active users (MAUs), regarding which he observed:
“We do not expect to see sustained, meaningful growth in MAUs until we start to reach the mass market. We expect that will take a considerable period of time.”
5. In other words, the company had not yet found a way to reach the “average” user of social media, which is the key for ultimate financial success. Some investors found enough in the bluntness of these remarks to stick with the stock, but a significant number did not. The stock price at one point declined over 10%.

6. As for the question who will take over as the permanent CEO of Twitter, Dorsey stated:
“I know this is a trending topic on Twitter around the CEO search, but unfortunately, we do not have an update to provide today.
The upshot is that the company saw the ex-CEO walk out the door last month, is currently being run by an interim CEO, and has no replacement for the CEO position for the moment.

Stepping back from the dynamics of quarterly earnings reports, what does this spike up and almost instantaneous down in the Twitter stock price tell us about the company. An interview on July 30th on Bloomberg radio with hi-tech analyst Brian Wieser of Pivotal Research Group made several telling observations. At its heart, the question is whether Twitter will ever be more than a niche company, serving a certain number of users who find benefit in it. The target of comparison is Facebook and, indeed, Twitter is said to be obsessed about benchmarking itself to Facebook. The problem is that Facebook seems to be moving inexorably forward towards establishing itself as a social media platform. It is reported that the average Facebook user is on the site for over 40 minutes a day. Together with the extraordinarily high number of Facebook users world-wide, that is music to the ears of advertisers, of whom more and more turn to Facebook as a first port of call.

Compare this with Twitter. It reported that it has slightly more than 300 million users, a respectable number—if you are a niche social media service. The attractiveness of Twitter as an advertising opportunity is, however, more limited, and one wonders whether just the passage of time can ever ameliorate the situation. Add to this an anecdotal observation by this Kat. He has four fully grown Kittens, with whom he is in nearly daily contact. Facebook is frequently mentioned in conversation; Twitter has never once been uttered. So we end where we began—does Twitter have a long-time future?


Anonymous said...

So now we know, there are narcissist in the World. Twitter is failing as it does not have real purpose.

Anonymous said...

Twitter is the greatest digital revolution since the invention of the internet search engine. It has digitised access to information and the world. Social media is fine if you want to now what your neighbour had for breakfast, but for serious people its twitter.The only issue, can it survive stand alone.

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