I love Twitter.
It’s a brilliant and revolutionary service that allows people from all over the world to connect with each other and to large audiences dynamically and in real time. In this way, it is a new communications technology that has truly changed the world for the better and I imagine it will continue to surprise and delight myself and millions of its other loyal users.
Last night, Twitter (TWTR) released its second earnings report as a public company and the stock is trading much lower than yesterday’s close to around $38/share. This comes after an already precipitous slide from the $73.31 close on December 26th four months ago. Growth continues to slow and investors are questioning whether the platform can achieve near universal adoption the way Facebook (FB) has done it.
High expectations accompany high valuations, and clearly Twitter is faltering presently.
In addition, stock valuations fluctuate with the mood of the collective market participant. During the fourth quarter of 2013, the home stretch of an amazing year for the stock market and when Twitter IPO’d, investors were filled with greed and chasing stock price momentum. They were willing to entertain best case scenarios and neglect present and future earnings potential. The mood now, however, is much different, and last year’s high fliers without GAAP earnings are getting beaten down everywhere you look.
At the company, this creates a challenge because the mood and environment there will also be affected by the drop in the share price. Employee options will not be worth as much and the spring in many a step will be tempered.
Twitter faces many challenges as Jeff Macke and I described yesterday before the number. Its biggest challenge, however, will be to remain focused on executing the company’s strategy amid the morale crunch accompanying the price drop even as it faces intense competition from Facebook and other newer social communications services.
Still, Twitter needs to execute now more than ever. It needs to vastly improve real time search and monetize it effectively which is no small order. It also needs to make onboarding new users a delightful and instantly gratifying experience.
I hope they succeed.
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