Why Is Wall Street Running Out Of Patience With Twitter

Twitter's continued user growth problem, inability to find CEO and buyout rumors getting a high with stocks going down, indicates Wall Street’s patience is running out

Twitter_CEO_Jack_Dorsey

By the end of 2013, Twitter – the 140 character social network decided to walk the IPO route. With Dick Costolo as the CEO, the company decided to start trading at $26 for the proceeds of the sales of 70 million shares of common stock.

Back then Twitter was valued $14.16 billion based on 545 million non-diluted shares or a maximum of approximately $18.1 billion based on 705 million fully diluted shares.

Twitter recently posted Q2 2015 earnings and the stocks nosedived by more than 25% in that month. Revenues have been growing for Twitter after a disappointing Q1 2015 when its revenues missed the company’s own guidance, as well as Wall Street’s estimate.

In Q2 2015, Twitter reported $502 million in second quarter revenue. Analysts had expected the company to bring in $481 million in the quarter.

Twitter q2 2015

However, the user growth problem isn’t leaving Twitter any soon. The company reported 304 million monthly active users, up only 2 million since the first quarter. The bigger bad news for Twitter is that US, which gets the company its maximum revenue, has been at a stand still with user growth. In its second quarter financial earnings statement, the social network had 65 million monthly active U.S. users – the exact same amount as last quarter.

Twitter Monthly Active Users

Twitter’s interim CEO Jack Dorsey who was brought in recently after Dick was let off by the board, realizes the problem. “Our Q2 results show good progress in monetization, but we are not satisfied with our growth in audience,”

Moreover during the call Twitter’s Finance Chief Anthony Noto threw cold water on investors remaining hopes by saying that the company’s user growth is not expected to rebound anytime soon. “We do not expect to see sustained meaningful growth in MAU until we start to reach the mass market. We expect that will take a considerable amount of time.”

Post that not only the air of Twitter’s IPO balloon is leaking, its core people are moving out too. Recently Nipoon Malhotra, who formerly headed Twitter’s brand advertising product team, moved out to Pinterest as product manager of monetization, focusing mainly on ad tech.

Matters became worse for Twitter yesterday, when for the first time, shares of the embattled social media company dropped below $26—the pricing set during the company’s November 2013 initial public offering. The stock recovered slightly to close at exactly $26—a nearly six percent drop—leaving those first investors at break-even.

Twitter_Stocks

Twitter’s all-time high was $73.71 per share, nearly three times its current value. Subsequently the company’s public equity is down over 46 percent from its 52-week high of $55.99, a record set in October of 2014.

Twitter’s user growth problem has often been related to its inability to reach out to the masses like Facebook has done over the years. Twitter is still a very much loved platform by journalists and tech folks. Twitter’s interim CEO Jack Dorsey states these challenges, “In order to realize Twitter’s full potential, we must improve in three key areas: ensure more disciplined execution, simplify our service to deliver Twitter’s value faster, and better communicate that value.”

Over time Twitter has tried hard to simplify the product or even tried mimicking Facebook at various occasions. For that matter Facebook has also xeroxed features from Twitter but it has its investors in confidence.

For now it looks like Twitter is slowly but losing ground and the patience of the investors. With stocks tumbling, rumors are also hot that Google might be interested in Twitter, at a time when Google+ has made a pivot from a social network to a connections platform.

Twitter’s chief financial officer, Anthony Noto, called for patience during the last earning’s call. But Twitter’s continued struggle of user growth for last few quarters, inability to find a new CEO and buyout rumors getting a high with stocks going down time and again, clearly indicate that Wall Street’s patience is running out.