Twitter (TWTR 16,62 +0,27 +1,65%) stock price has been in decline, is far below their 52 week High of $55.99, and the company’s user growth is not performing at expectations. What is going on, and can the company stick recover?
Just before its second quarter results were announced on Tuesday, July 28th, TheStreet reported Jim Cramer was expecting to see a bad quarter for Twitter. However, He was “optimistic for Twitter’s year-long potential. Cramer stated, “this is a situation where ‘the pipe of what Twitter wants to do in the second half is so good’ that if the stock were to drop down to the $30 to $31 range from its Monday open at $35, then investors would see a lot of buy-ins.”
What we saw was Twitter’s stock price falling well below the $30 mark, and those who placed orders to buy at this price have lost a big hunk of change. Cramer has since changed his views, and now believes Twitter could fall as low as $19.20, at which point Google (GOOG 828,07 +3,91 +0,47%) Facebook (FB 133,53 -0,31 -0,23%), or even Yahoo! (YHOO 45,10 -0,06 -0,13%) could jump in with a takeover attempt.
The cause of Twitter’s price decline
The concern for investors, reported widely across business news, is Twitter’s user growth. While still positive, it has been a disappointing. Twitter consistently meets or beats financial targets, but has been struggling to attract new users. Twitter’s future earnings is linked on getting new active users, because one cannot continue to milk dollars from a limited number of users.
Twitter’s quarter ended with 316 million average monthly users, a 15% increase compared to the same quarter in 2015, and up by almost 4 million new monthly users quarter-over-quarter. While the numbers were better than many expected, the increase came from users identified as “SMS Fast Followers,” those who use Twitter via text messages and not logging into the platform.
Fixing Twitter’s user growth issues
Back in early 2014, Twitter announce plans to focus on four areas:
- Enhanced user experience on mobile devices,
- More photos and videos,
- Better tools for conversations, and
- Better organization of content.
Dorsey wants to make several enhancements to Twitter that he believes will increase user growth:
- Overhaul to the famous Twitter timeline to make it look more like Facebook, (i.e. relevance will take priority to recency)
- Instant timelines and a new homepage for casual users,
- A “While You Were Away” feature to show users older tweets, and
- A feature code-named “Project Lightning,” that uses human editors to collect top tweets about trending news topics and live events as they unfold.
Someone needs to explain to Dorsey that Twitter is not Facebook. They serve two different purposes for users. If Twitter wants to becomes more like Facebook, we won’t need Twitter.
Facebook is generally for connecting with people we know in real life: friends, family, former classmates, coworkers, et al. Twitter is a soapbox where we proclaim to the world. Twitter is about gaining as many Followers as you can, and getting them to listen to whatever thought you are having at this moment.
On Facebook, if a user has been offline for awhile, they want to see the baby pictures their best friend posted two days ago. On Twitter, users want to chat about today’s news events, the show on television now, or a music video one just watched. Twitter is about today, now, this second. It is not about yesterday, two days ago, or last week.
If Twitter wants to increase user growth, because of the nature of their use, they need to ease up on their limits, which have evolved over the years. Known limits include:
- Direct messages (daily): The limit is 1,000 messages sent per day.
Tweets: 2,400 per day. The daily update limit is further broken down into smaller limits for semi-hourly intervals, and Retweets are counted as Tweets.
- Changes to account email: Four per hour. (I don’t know why anyone would do this)
- Following (daily): The technical follow limit is 1,000 per day.
- Following (account-based): Once an account is following 2,000 other users.
Twitter has additional follow limits, both daily and account-based, that they explain on a “best practices” page, but are more vague and secret. Twitter asks users to avoid things like:
- “Aggressive Following” – Twitter tells users they can follow 1000 people a day, but then states aggressive following is defined as following hundreds of accounts, and following a few users is normal and is not considered aggressive.
- “Churn” – Twitter describes churn as when an account repeatedly follows and then unfollows a large number of users, believing it negatively impacts the experience of users.
- Additionally, once a user follows 2000 people, there are limits to the number of additional users you can follow. This limit is vaguely explained as “different for every user and is based on your ratio of followers to following.”
Twitter has also recently demanded 3rd party applications, developed to manage those one follows, to hard code limits for “Suspension Prevention.” Examples of these limits include:
- Daily Follow limit of 950,
- Daily Unfollow limit of 500,
- Daily “Forced Unfollow” limit of 500, (Force Unfollow is quickly blocking and unblocking a user who is Following you, so that their Following of you drops.)
- Users followed cannot be Unfollowed until 3 days have passed.
- Users Unfollowed cannot be Refollowed.
Additionally, Twitter has in place API limits which, when first implemented, some believed would limit their growth. API is a set of routines, protocols, and tools for building software applications. If you are a developer wanting to create a mobile app that incorporates Twitter, it impacts that applications own growth. Fewer developers creating apps for Twitter, could be linked to the decline in Twitter’s overall user growth.
There was a time when Twitter was allowing 3rd party apps and websites to parse Twitter feeds, and then use those tweets to create niches that users could interact with. Some sites like this still exist and are created. However, over the years, more and more limits have eliminated many of these sites, and stopped the development of others.
The typical user of Twitter, in my opinion, wants as many Followers as possible. They want to then be able to get on their soapbox and shout out how much the love or hate a political candidate. They want to share the experience of their favorite character on a television show being killed off with others, who are experiencing it in real-time. They want to gain thousands of Followers to fulfill a psychological need, validating what they have to say is just as important as the CEO of a Fortune 500 company.
Twitter has forgotten what made it popular in the first place. If the leadership at Twitter thinks copying Facebook is the big fix for their user growth problem, don’t expect things to turn around. Twitter will be gone in three years, or gobbled up by one of the other major internet companies.
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