Twitter stock (NYSE:TWTR) has fallen out of favor. Part of this is the general “bah humbug” vibe that investors are giving to all social media stocks. And part of it stems from the social media company delivering a weak earnings report back in October. Not only did the company miss on earnings, but they lowered their guidance for the fourth quarter.
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Some analysts are suggesting that TWTR stock has now reached the oversold state. But with upward momentum only suggesting a gain of around 9% from current levels, TWTR seems like a short-term trade instead of a long-term investment.
That being said, 330 million monthly active users (MAUs) give Twitter an appeal to advertisers. And since that’s where Twitter makes their money, it’s hard to ignore. Particularly since it is seen by users as being “the least bad” option among social media channels.
But if you’re thinking about buying low on Twitter stock, here are a couple of things to consider.
Active Users Do Not Equate to Brand Loyalty
Brand loyalty is about choosing one brand at the expense of another. For example, there are many people who will choose to drink (and buy) Coca-Cola (NYSE:KO) products at the expense of Pepsi (NASDAQ:PEP) products and vice versa.
Social media is not like that. Twitter can boast of 330 million MAUs and 134 million daily active users (DAUs). However, the vast majority of those users are not choosing Twitter at the exclusion of other social media outlets.
Many users, for example, may use Facebook (NASDAQ:FB) to communicate with family and close friends. LinkedIn, which was acquired by Microsoft (NASDAQ:MSFT), is for professional use. Twitter lacks the same real or perceived niche. In many cases, users see it as a news outlet, but even there it isn’t the only form of social media users are engaging with.
A more interesting number would be how many unique eyeballs Twitter captures. I imagine that number would be much smaller.
Purchase Intent Does Not Mean an Actual Purchase
Businesses that market on Twitter have come to rely heavily on influencers. Influencers are individuals who have the ability to affect how users perceive brands or ideas in an online community. A 2016 study by Twitter and Annalect found that Twitter users reported an increase in purchase intent of over five times when they were exposed to promotional content from influencers.
I’ve mentioned my marketing background in the past. Many excited marketing managers have shown me research results in which their brand scored high on “purchase intent.”
However sound the methodology is for defining purchase intention, it is, at best, a hypothesis. For example, in a study about cars, marketers may ask you “when do you intend to purchase a car?” I could say I intend to purchase a car in the next 12 months. It doesn’t mean I’m going to purchase a car at all.
In fairness, Twitter does have a more recent statistic that cites 40% of users have purchased an item after seeing it advertised on Twitter.
Twitter Gave Up Its Unique Selling Proposition
When Twitter first hit the social media scene, its defining characteristic was a 140-character limit. The idea was that users had a short attention span so give them what they want. Many users liked that feature about Twitter (and many users still do adhere to the smaller character limit).
However, marketers found it limiting. So, Twitter upped the character count to 280. In doing so, it’s become hard to tell the difference between a tweet and a Facebook or Instagram post. The lines have been blurred. Which takes me back to my statement about Twitter and brand loyalty. Users are clearly seeing Twitter as one of many options. And that means they’re not unique.
Being unique is essential for a channel like Twitter. As I mentioned above, LinkedIn has the benefit of being utilitarian. If nothing else, people are using it to network and look for jobs. Facebook has sheer volume going for it. Twitter has neither.
I know there are several marketers that would disagree with me on this point. Many would say that expanding their character limit helped Twitter grow its user base. That’s fair. But the argument I made earlier is that the vast majority of Twitter users are not unique to Twitter.
Social Media Is the New Normal
As much as it may seem like I’m banging on Twitter, I use Twitter quite frequently. That doesn’t mean I see TWTR stock as a good investment. I have a hard time seeing the long-term value in social media stocks in general. The emergence of Snap (NYSE:SNAP) with their Snapchat app, along with TikTok is making a crowded space more crowded.
At some point, like the streaming wars, I believe users will have to pick and choose which accounts they stay actively engaged with. And that’s why you have to look beyond the numbers before deciding if Twitter stock is a good investment. It’s not for me.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
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