Stock of the day 04/02/2015 – Twitter Inc

After a strong Q4 2014 earnings release from Facebook last week, Twitter will be hoping it is #blessed and can match its social-media rival when it announces its own fourth quarter results on Thursday.

After its IPO in 2013 led to Twitter’s all-time high price of $74.71 at Christmas of that year the company failed to build on this success as 2014 went on, in a disappointing 12 months for the social-media service. It started 2014 at $64.81 and frustratingly for Twitter hits its year-high on the 3rd January at $70.44. By May this price had more than halved as the stock hit $29.51; it managed to claw its way back to $55.97 in October, but once again lost its way as Christmas approached, starting 2015 at $36.08. Twitter is now trading at $40.09.



More than any financial issues, the main obstacle for Twitter is the perceived stagnation of its user growth. Q3 2014 saw a 23% year-on-year gain in users to 284 million monthly active user accounts; whilst solid, in comparison Facebook has nearly 1.4 billion active users and is still growing. Considering the two aren’t mutually exclusive platforms, investors are likely to be heavily critical if Twitter can’t show rapid gains in, or at least ways of, increasing its user-base. Linked to this is the fact that 44% of Twitter accounts have never actually tweeted; for a social media site Twitter is often missing the ‘social’ part of the equation, with many users only following celebrities etc.

Part of the new-user problem stems from people’s dissatisfaction with the lengthy sign-up process; to combat this Twitter recently announced an Instant timeline feature that will automatically search for relevant accounts to follow. By attempting to make signing up a less painful process, Twitter is at least making concession towards the overall aim of improving its (relatively) sluggish user growth.

An increase in users can only help Twitter’s three main revenue streams: Promoted Tweets, Promoted Accounts, and Promoted Trends. Last quarter Twitter managed to grow its advertising revenues per thousand timeline views by 83% to $1.77. However, there is a rather large discrepancy between the effectiveness of its advertising in the USA and abroad, with the former at $4.28 per 1000 timeline views compared to $0.84 internationally. An announcement that reflects progress in this area, one ripe for potential growth, would provide a big boost for the company. It also just announced a way to utilise its Promoted Tweet feature beyond the site itself, in a deal with Yahoo Japan and news app Flipboard that will see non- users targeted with ads originating from Twitter’s website.

Twitter has also in recent times introduced a flurry of new features, including a ‘Buy’ button for purchases directly from retailers, Promoted Videos, a group chat function, and similar video functions to Vine and Instagram . The company is trying to be an amalgam of every social-media service out there and is obscuring the reason why it became popular in the first place. When Twitter started it was an alternative to Facebook; the more it tries to emulate its rival, the more it is likely to suffer.

Analysts are forecasting earnings per share of $0.06, with $453.34 million in sales; however, like Netflix and Facebook, user growth is just as, if not more, important than the financial figures. Twitter is likely to live and die tomorrow on any signs it has significantly increased its user base in Q4 2014.