Wednesday, April 29, 2015

Vindication: Twitter Earnings Disapoint

Quick preface video before diving in.

In February I wrote here saying Twitter was overvalued as important metrics such user growth were quite lackluster. While writing that article, the stock was rallying and hit a cool $48 per share, rising even further, breaking past $50-$51 before finally plummeting following yesterday's earnings release. Today, the stock is down another 9%, hovering around $38.50.

During the previous earnings reports, user growth was the disappointing aspect, but at least the revenue growth and earnings were solid. Financials were better, growth was not. This time around, Twitter disappointed on all fronts, even missing it's own revenue estimates. There are lots of points to touch on, but I just want to focus on the new product developments from twitter. In my opinion, Facebook, Instagram, Yik Yak, and Snapchat are leaving Twitter in the dust when it comes to new features. The results show in the user growth. These companies blow Twitter out of the water in terms of daily users. There is no way that people are going to join Twitter in the same way that Facebook or Instagram were able to attract users. If you are not at the forefront of new technology, you can easily fall to the wayside like Blackberry or MySpace, and this is especially true in the realm of social media.


Last post I spoke about the lack of new product releases on the platform. Well, since that time Twitter has actually gone IN REVERSE. Instead of adding new features, Twitter has gotten rid of some aspects of that app. For instance, the activity feed that showed you what people you follow were doing on twitter. On this section, you were able to look what tweets people were favoriting and who they had recently followed. That's gone. Instead, they combined all aspects of the app into just the homepage of tweets and a search feature, which shows what is trending on twitter. That's it. In fact, the biggest innovation seems to be the "while you were away" feature, which shows tweets that you may have missed since you last logged in. Meaning, if I haven't been on twitter in 24 hours, it will show me tweets that were happening 18-24 hours ago, in a "while you were away" section. This is a worthless feature. Twitter is all about the PRESENT and BREAKING NEWS. I don't log onto twitter to see what someone tweeted in the past. I check my feed when there the World Cup is on, or the NBA Finals is ongoing, when there is unrest in Baltimore and I can get a live feed on the situation, when there is an economic summit and so on. The entire premise of that feature is flawed. Twitter is a news site. It's not about individuals or people, it is entirely premised on events. In that sense, it is not a typical social media site, where the focus is on each person and that person's long term profile. Twitter is short term oriented. I'm not sure where the company goes from here, but I don't believe it's moving in the right direction at the moment.


It might be time Dick Costolo found the exit. Until there are significant product improvements, the long term prospects of the company don't appear to be as positive as the current valuation suggests.