5 things Twitter's revealed with its dismal earnings
Forget a 140-character tweet: Twitter's (TWTR) problems could fill a book.
The San Francisco-based company yesterday reported disappointing fourth-quarter results, adding fuel to investors' already considerable skepticism about the microblogging site.
Twitter shares, which have shed more than two-thirds of their market value during the past year, declined more than 2 percent in trading on Thursday morning. The stock is down roughly 68 percent from its opening price of $45.10 per share when the company went public in 2013 in what was one of the most ballyhooed inital public offerings of the year.
The heart of the problem, as Wall Street sees it, centers on the curious issue of Twitter's lack of user growth. Social networks are only as useful and appealing as the vitality of the people using the service, and that's where Twitter fell short, reporting that it lost 2 million users between the third and fourth quarters. Facebook, on the other hand, continues to grow its network, putting Twitter to shame.
"Investors value tech companies in general and Internet companies in particular on their ability to grow rapidly," Wedbush analyst Michael Pachter wrote in a research note on Thursday. He has a "neutral" rating on the stock and a $20 price target. "Twitter needs to convince nonusers of the site's value proposition, and we see little evidence that they are doing so."
Then there are operational concerns, such as the fact that chief executive Jack Dorsey is splitting his time between payments-processing company Square and Twitter, as well as a recent staff reorganization.
Investors and analysts had a chance to ask some of their pressing questions to Dorsey and his team after the earnings were released on Wednesday afternoon. Here are five key takeaways from those discussions.
Resurrected users. It may sound like an episode of "The Walking Dead," but Twitter is hoping that what it calls "resurrected users" can help save, rather than destroy, the company. These are Twitter users who have stopped logging into the service, but whom the company is prodding to become active again. Chief financial officer Anthony Noto said Thursday in a call to discuss the latest earnings that the company cut back on reaching out to dormant users in the fourth quarter. But he added that the company views them as a "great opportunity" to help the company grow.
Broken windows. Dorsey used this term to refer to what regular folks would call Twitter's confusing format and service. The company plans to fix "some broken windows" that have been holding back growth, he added. How will that play out? Dorsey hinted at some of the changes, noting, "We have some really weird rules around conversations specifically around replies and this dot @name format that just nobody understands, and we just need to fix those things."
Up, Periscope.Twitter's live streaming app, called Periscope, may not be well known by many of its users, but Dorsey highlighted the service as one of the company's key priorities for 2016. "We're going to invest in being a leader in live streaming video, building off our lead with Periscope," he said in the call with analysts.
Adding staff. The company had a number of high-profile executive departures last year, but Dorsey said that "2016 is definitely going to be a year of additions." One focus will be adding and strengthening to its consumer, engineering, products and design areas, he said. That fits in with the priorities mentioned above, such as making the service easier to use, but there could be potential pitfalls if the new focus leads to changes that Twitter's core group of users don't like. Already, there's been some pushback from dedicated fans over reports that Twitter may start displaying tweets by an algorithmic process, rather than chronology.
Splitting time with Square. One big concern has been Dorsey's dual-CEO appointments to Twitter and Square. Dorsey highlighted how he manages to run both companies, which may not put to rest some of those questions. "We set off the week together at both companies and we have checkpoints. And then the balance of my time is really spent on recruiting. That is going to be the #1 focus for me," Dorsey said. All well and good, but given that Twitter's problems extend far beyond staffing, it begs the question of whether he has the time to focus on problems like revving user growth and drawing more advertisers.