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Can Twitter Rise Above The Rubble?

- By Nicholas Kitonyi

Twitter (TWTR) is an online social networking service that allows users to send and read short 140-character messages called "tweets."

The service quickly gained worldwide popularity after launching in 2006 with over 100 million users posting 340 million tweets daily by 2012. Currently, Twitter is believed to have well over 500 million users, out of which nearly 320 million are active.

The company was once seen as a potential force in the social networking sphere due to its engagement levels, but that dream now appears to be slowly disappearing in the mists of history.

Twitter's stock price has plunged from the mid-$50s to the current levels of about $14 per share in just over 12 months, leaving investors perplexed by what its immediate future could hold.

Twitter continues to struggle in converting its current user base into revenues, and this problem has been compounded by a series of top-level management departures over the last few quarters. This week two more executives were announced to be on their way out.

Twitter's stock took a familiar dive after the Internet company reported first-quarter revenue, which missed Wall Street targets. The companyas guidance for the second quarter also came up short of analyst expectations thereby outlining the magnitude of its current problems in sustaining growth in the top line.

Twitteras first-quarter revenue of $595 million, which is up 36% year on year, was below the average analyst expectation of $607.8 million. On the other hand, the company's earnings per share of 15 cents beat the consensus analyst expectation of 10 cents. Its monthly users increased from 305 million at the end of 2015 to 320 million.

The companyas second-quarter revenue guidance moved from $590 million to $610 million, compared to the average analyst expectation of $677.6 million. Twitter's stock has now dropped more than 15% to trade at about $14 per share, which is an underwhelming trend for the short-messaging Internet platform.

Last year, Twitter's co-founder, Jack Dorsey, took over the stewardship of the company as he seeks to reinvent the company and save it from extinction. The social networking marketplace has become one of the most competitive over the last few years with several startups easily able to launch their services.

Snapchat, which is a video-sharing platform, is tipped to be one of the most promising companies in the industry and has recently been valued at $20 billion, which is twice Twitter's current market value. Snapchat has received venture capital funding as it gears toward its highly anticipated IPO. Such competition is what could eventually put Twitter out of business.

Twitter is in the process of tweaking its marketing department, which it partially blamed for the unconvincing quarterly results. It has since been reported that two executives will be leaving the company.

As a result of the expected departures, Twitter has tapped one person to take over both roles, according to sources. Ali Jafari, the VP running Twitter's Amplify video advertising business, will take over media, business development and Amplify as one unified partnership organization, according to sources.

The idea is that many Twitter marketing partners work with all three teams, and aligning them under Jafari might help streamline certain projects and partnerships.

News of the departure of Nathan Hubbard, head of media and commerce, comes a day after BuzzFeed reported Twitter had disbanded its commerce team and stopped work on its "Buy" button efforts, which allow users to purchase items directly from a tweet.

The timing of Hubbard's departure, however, could be coincidental. That's because the commerce team was actually disbanded in October, according to multiple sources, when Twitter reduced its workforce by 8% in the last round of company restructuring.

Twitteras current active user base has plummeted and is now around 320 million, which is small compared to competitors like Facebook (FB) (1.8 billion users daily), Instagram (400 million users daily) and Snapchat (seven billion views daily).

In addition, advertising on Twitter is not cheap; prices for a promoted Trend or a promoted Moment are high especially when considered in relation to the small user base, which makes the platform less appealing for brands.


In summary, Twitteras endgame may be tied to a major change in its structural setting, in which case it may need to introduce more features that could help to break down the barriers for new users and make it easier for marketers to advertise on the platform.

The company has taken the initial steps by realigning its marketing department while newly introduced features like "Moments," which ranks "the best pictures, highlights and headlines" from relevant stories, have been tipped to change the tide for the companyas declining user base.

So will Twitter rise above the rubble, pick up the pieces and bits and rally again to repay shareholders? It would be a fairy-tale turnaround if it does.

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This article first appeared on GuruFocus.