After owning a stock that soared close to $80 a share at its high point, its no surprise that Twitter shareholders were disgruntled to find the stock trading for only $20 a share at the end of 2016. Unfortunately, shareholders have more reason to worry in 2017. The company has stopped attracting new users and is learning the hard way that advertising revenue alone is not enough to generate large profits long term.
On the plus side, the company is diligently researching new revenue streams and has reason to be optimistic. As an effective and efficient source for breaking news and relevant comments, Twitter has positioned itself well among journalists and other large media consumers. So much so that they plan to introduce a paid subscription service called TweetDeck which will offer easy access to breaking news as well as a third-party analysis of the information. Unfortunately, a subscription fee of $20 per month spread across Twitter’s 200,000 verified accounts would only generate $4 million in income. This is nowhere near enough to cover the company’s 2016 loss of $457 million.
One key reason for the company’s loss may be the current political climate. While not as personal as Facebook and other social media venues, Twitter still derives its content from users. These users are frequently discussing volatile social and political issues that many of the firm’s advertisers wish to avoid.
Twitter is also unable to offer advertisers the numbers its competitors can. Despite boasting 320 million active monthly users, Twitter simply isn’t competing well with other social media outlets. User growth has leveled off and at the end of 2016, 79% of online adults were using Facebook while only 24% were using Twitter. Instagram, LinkedIn, Pinterest and other popular sites are also muscling in on some of Twitter’s potential users and advertising dollars.
Though the company has many of the hallmarks investors look for, it seems to be having trouble turning its potential revenue into actual income so far in 2017. Major changes at the executive level have also made investors fearful for the future. Even worse, several possible buyouts of the company were discussed, but all of the potential bidders walked away from negotiations without buying the company.
As of April 2017, Twitter shares were still holding at about $14 per share, but experts agree that a decline is likely. According to CNBC, the managing director of Global Equities Research, Trip Chowdhry, is predicting tech stock valuations will “collapse” during the second quarter of 2017. Chowdhry suggests that “getting a price of even $10 (for Twitter) will be difficult.” The Motley Fool seems to agree with Chowdhry, deeming the stock potentially “toxic.”
As of this writing, Twitter’s all time low was $13.72. If, however, Chowdhry and others are correct, Twitter could be heading to a new low in 2017. Only time will tell if the social media company can turn its performance around or is doomed to prove the naysayers right.
Daniel Palmier is a leading Boston CEO, Real Estate Investment Manager, and Founder of UC Funds.