Why Is Everyone Abandoning Twitter?
Twitter released its earnings numbers for the first three months of 2014 on Tuesday afternoon. Despite showing a certain amount of promise, analysts outlook for the company is much more negative than it was before the better than expected earnings. There’s just one reason behind the change, Twitter is not gaining new users fast enough, and that’s a problem for any internet company.
Twitter said it had 255 million monthly users in March, up from 241 million at the end of 2013. It is clear that the company’s user base is still growing, but that growth is not enough to satiate the forecasts of Wall Street analysts. Twitter offers a great service, but it appears not that many people are interested in getting involved any more, and there are good reasons why.
Twitter Is Getting Stale
Since the rise of instant messaging in the 1990s through to today, young people have constantly driven adoption of new social platforms. Teenagers and college-aged consumers tend to use social media a good deal more than their parents, and their engagement to platforms drives their popularity across the board. Young people have, however, been fickle, often abandoning a service just months after peak popularity.
There is a theory that once a technology becomes completely embedded even teenagers will have a hard time moving it. That’s one of the foundations of the value of Facebook, though it is still rocked by rumors of teen flight from time to time. Very few would argue that Twitter is as embedded as Facebook in the collective consciousness, and that makes it more vulnerable to fears of desertion.
In the latter half of 2013 through the first quarter of 2014 it appeared that Twitter was losing its cool factor. The new way to communicate appears to be through messaging applications. Twitter is not competing well with the likes of SnapChat and WhatsApp. That may be hurting the social networks growth potential as it attempts to jump from the high user growth model into the actually profitable model.
Twitter Earnings Spook Street
In the tech world it is easy to demonstrate value by pointing to user numbers. Even with zero profitability companies with hundreds of millions of users have been able to justify market valuations in the billions. there appears to be no end to the number of companies able to justify value on the back of user numbers alone, but there are very few able to justify any great value as those numbers fall.
Twitter is not shedding users just yet, but it is shedding money. The company lost its shareholders $1.87 per share last year. It’s likely to do better this year, but the firm still has a long way to go before it can truly justify its currently massive valuation. Today’s loss of more than 11 percent of its value is a clear testament to that, and if the company cannot turn user growth around, that trend should be expected to continue.
Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.