140 Problems


I know this story originally unfolded last year and I know that none of us ever want to think of 2016 again. But I promised to cover this story and by god I will cover it, no matter how late I am.

Twitter: Soon to be the main communications outlet for the White House and the United States government. Over three years ago, I wrote one of my first blog posts where I discussed Twitter’s IPO. Since then, if you decided to invest in Twitter and stuck around for the long run then I feel bad for you son. If my basic geometry knowledge serves me well, then this is not the kind of shape you would want in your stock price.

twitter-stock-price
Buyer’s remorse

How did Twitter get here? It’s market cap today is almost a quarter of what it had been in the beginning of 2014. Wasn’t Twitter once deemed as the darling of the tech industry along with the likes of Facebook and Google? Lets look back and see how Twitter got into the hole its in right now.

Riches to Rags

I personally enjoy using Twitter. The company made a reputation for itself by drawing users like me who can be the first ones to learn about an event just seconds after it unfolds. No news organization will be faster than Twitter’s platform when it comes to notifying its audience of a news story. It also gives opportunities for every day folk to interact with well known celebrities and has also been a platform for individuals to express themselves in less democratic societies. However, Twitter is facing several major issues.

First of all, rivals Facebook, Instagram and Snapchat have all been consistently growing their userbase in the past couple of years. However, as the graph below presents, Twitter has had quite sluggish growth in its userbase over the last year or two.

twitter-user-growth
Proof that Twitter is the last corner of the Internet where we can remain hidden from our parents

Although 317 million active users might seem impressive, its disappointing compared to the fact that Facebook has about 1.8 billion active users and Snapchat, despite being a newer platform, has seen about 10-15% growth in its userbase each quarter since it was founded.

There are two big reasons why Twitter’s userbase is stagnating. First of all, Twitter is not as user-friendly as other social media platforms. I’m sure by now that many of your mothers, fathers and 5 year old nieces unfortunately have a Facebook account. But I’m sure that neither of them have a Twitter account. As I mentioned, I’m a fan of Twitter. However, Twitter has not taken meaningful steps in recent years to make its product accessible and enjoyable to a wider audience. Secondly, while activity on Twitter peaks during important events such as the Olympics or the US elections, usage subsides if there are no juicy events unfolding.

Why does Twitter focus so much on its userbase? So advertisers can give’em more cash for ads. The slowdown in user growth has led to advertisers becoming more reluctant to place their adverts on Twitter. This creates a double whammy effect. As Twitter’s userbase stagnates, it also has a tougher time monetizing that userbase. Advertising revenues are the lifeblood of social media networks like Twitter. Those pesky promoted tweets are what keep Twitter running. No advertisers, no money ; its that simple.

Finally, ever since it was founded in 2006, Twitter has had shakeups in its leadership. More recently, in 2015, founder Jack Dorsey replaced Dick Costolo as CEO, and in 2016, the firm’s COO and CTO resigned from their posts. The inconsistency at Twitter’s C-Suite is also one of the reasons why both investors and advertisers have questioned the future of the company.

I Got a Few Dollars I Could Fight the Case

Of course Twitter won’t sit by idly as it crumbles. CEO Jack Dorsey has taken some initiatives to revive the company.

Remember Vine, that app full of nonsensical 6 second videos. Well that was owned and operated by Twitter. In October 2016, Twitter shut down the Vine network in an effort to cut costs. Twitter’s cost cutting measures have also included laying off employees by the hundreds. Not the best of times to work for Twitter right now.

Twitter has also attempted to capitalize on its reputation for being the platform where events unfold live. In a series of surprising moves, Twitter has won deals over rivals to be able to live stream sports events such as NFL, NBA, MLB and Wimbledon matches, with the latest being the most notable being the deal signed with the NFL in August 2016. Combined with its acquisition of Periscope in 2015, Twitter hopes to be able to draw in more users and begin attracting video advertisements by focusing on live streaming. The following video provides a more detailed breakdown of the deal Twitter has carved with the NFL.

Do You Mind if I Look Around the Car a Little Bit?

However, as of yet, Twitter’s foray into live streaming has not had the desired results.  Continuing disappointment in revenues led Wall Street to continue punishing Twitter. With its stock struggling, rumors began swirling that given its cheap price, Twitter could be the target of a takeover.

In fall of 2016, news broke out that potential buyers had indeed lined up to prepare a bid for Twitter. Alphabet (parent company of Google), Disney, Verizon and Salesforce were some of the interested parties that were discussed in the headlines. However, shortly thereafter, all interested parties pulled themselves out of the running. Citing the issues the company has had attracting advertiser, all potential bidders with the exception of Salesforce decided to opt out of an acquisition.

Many analysts thought that Google would have made the most suitable acquirer for Twitter. Google also generates a significant portion of its revenues from advertising and there are many possible ways Twitter could complement Google’s own social media platforms. However, it was Salesforce that ended up being the final contender. Salesforce is not a company that makes the headlines in pop-culture. So what is Salesforce and what did they expect to gain out of acquiring Twitter?

Son Do You Know What I’m Stopping You For?

Although Salesforce sounds like it could be an avid shopper’s dream come true, the company’s business model is actually a lot less exciting. Salesforce is a cloud computing company that offers businesses cloud-based applications that allow them to manage relations with their customers. Salesforce’s main product provides services such as allowing customers to connect with other customers via a social media platform and the ability for businesses to perform analytics on the services offered to their customers.

For a while now, Salesforce has wanted to complement its business with a social media platform where they could assist companies in connecting with their customers. In June 2016, Salesforce lost out to Microsoft in a bid for LinkedIn. Thus, Salesforce saw Twitter as a second chance to get into the social media game.

However, when news broke that Salesforce might be interested in Twitter, something very interesting happened; Salesforce shareholders revolted against management. Through emails and letters, Salesforce’s institutional investors vocally expressed their concerns about the deal to Salesforce CEO Marc Benioff. As mentioned in the video below, Salesforce investors did not see any potential synergies being created between Twitter’s advertising business and Salesforce’s software services. They also found Twitter’s $25 billion valuation to be tad bit expensive. Following investor backlash, Marc Benioff, who had previously called Twitter “an unpolished jewel”, stated that “Twitter is not the right fit for Salesforce”. That’s the change in tone that occurs in most relationships once they’ve passed the 6 month mark. At this point, I wouldn’t have surprised if Benioff had said that it wasn’t Twitter, it was us.

Bounce on the Devil, Put the Petal to the Floor

So what’s next for Twitter. Unless they can find a way to make money off of every Trump tweet, Twitter will continue facing an uphill battle. Revenue generation and userbase growth will continue to be at the forefront of Twitter’s concerns in 2017. The company can cut costs only so much, and with no potential buyers coming to the rescue any time soon things do not look good for Twitter. For future updates on the social media giant, stay tuned to Symmetric Information.

Epilogue

Finally, for those of you who caught the Easter eggs I’ve been sprinkling in this post, here is your reward.

“Twitter is great to connect with fans and be transparent. I enjoy that aspect about it. But really, I’m still trying to figure it out.”
– Kobe Bryant

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3 thoughts on “140 Problems”

  1. Well thought and well written. However I would definitelly recommend people to invest in Twitter as it provides service to all of us, whether it is independent/alternative channel of communication, or being next to the ones that have no power, as we have seen in protests in Turkey which I am sure you’re familiar with. I dont have a twitter and dont know how to use it but I have been exposed numerous times to secondary news feed / reproduction on other media and boy Twitter is much more than its cashflows. Twitter has at least partly been on a right side of history. As an investment surely don’t put all your savings on a bleeding horse, but give it some respect and a couple of bucks for the services it provides you (as you would do for a newspaper or so). Definitely joining and promoting a trend of ‘sell’ and ‘kill’ shows no respect to a platform that has helped solidarity spread around and across borders. Just my idealistic view, hopefully noteworthy. Thank you for your post.

    Liked by 2 people

    1. Hello FM! Thank you for the feedback. I appreciate it. I definitely agree that Twitter is a very valuable application. As I mentioned in my post, I greatly enjoy using Twitter because i) I can be informed of news very quickly and ii) as you mentioned, in some parts of the world such as in Turkey, it is extremely hard to get all the facts about certain events because of the censorship placed on usual media outlets (TV channels, newspapers, etc.). Twitter provides an outlet where people from these regions can really learn what is going on around them. For example I was on Twitter almost all day during the 2012 Gezi Park protests in Turkey.

      In my writing I try not to give explicit investment advice. In this post I tried just to discuss some of the financial and operational issues Twitter has been facing of late.

      I too wish that we could help fund a company as valuable as Twitter. However, once a firm goes public and institutional investors such as pension funds get involved, the bottom line becomes all important. Don’t forget, those pension funds who invest in Twitter are looking to make payoffs to future retirees. So pushing for Twitter to succeed financially is not entirely a materialistic perspective to have.

      Liked by 1 person

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