By: Todd M. Schoenberger, @JonesFallsPub, @TMSchoenberger
Spoiler alert: Twitter is in trouble. The soon-to-be eleven-year-old company has never made a profit and continues to lose billions of dollars as it attempts to reinvent its own self-reinvention. As great as the Twitter product may be, its business is in shambles.
The company is three years removed from going public; yet, it’s in the exact same spot it was pre-IPO. It boasts more active users, but for Wall Street analysts it’s a hollow metric. Twitter has never been able to craft and implement a realistic strategy to monetize its customer base. And that missing ingredient from the secret sauce of profits is what continues to plague the micro-blogging portal.
Twitter’s base consists of 500 million accounts, which are controlled by some 317 million monthly active users. The company has inked deals with many of the planet’s largest corporations, including the NFL, to advertise to its user base. But companies are struggling to pinpoint the ad-value of the Twitter user.
And this is exactly why Twitter is remarkably vulnerable in 2017.
When the company released its latest earnings report in October, it announced a significant reduction of 9 percent of its workforce as part of a “restructuring.” On the heels of its next earnings release, scheduled February 9th, Wall Street is curious as to how a company can restructure the already widely-popular, yet low-brow activity of posting 140-character messages. Twitter already ties into other portals, such as Instagram and Facebook, which serve as more of a convenience than revenue producer.
The irony of Twitter’s business troubles is the site is the only social networking medium to rival Facebook. Mainstay companies, like LinkedIn and Instagram, are ideal, but still don’t have the gravitas of Twitter. For instance, when individuals and businesses establish social networking accounts, Twitter is likely the first or second go-to portal and is used as the nucleus in many electronic marketing campaigns.
It’s hard to argue against Twitter’s power in delivering messages. As the world witnessed last year, Donald Trump did the majority of his campaigning via Twitter, and it worked. As salacious as his messages were, Trump utilized the medium to its fullest and helped build a movement that continues to leave many old-school politicians dazed and confused.
Oddly enough, though, investors are also dazed and confused about Twitter as a viable company. After all, how can an entity responsible for the election of a non-politician actually struggle? It’s number one account has drawn eyeballs to its site in an unprecedented way, and it’s not just here in the U.S., but globally.
So, what gives?
The negative issues hanging over the Silicon Valley company are the core reasons why so many have an issue with the President-elect’s use of the portal. It’s about the demographics.
Twitter attracts a remarkable high number of young people and low-wage earners when looking at its overall user data. According to SproutSocial, 37 percent of those age 18 to 29 use Twitter. For those age 30 to 49—the peak demographic for advertisers—only 25 percent use the service. And, for those age 50 to 64, the number drops to an abysmal 12 percent.
When looking at incomes, the data is even weaker. Only 27 percent of those earning $75,000 or more annually use Twitter, and the data drops even lower when reviewing lower income levels.
All of these metrics mean one thing: Nobody takes Twitter seriously. And, if Twitter had the statistics Facebook owns, pressure on the President-elect to curb his use may be somewhat muted.
To consider this thesis to be valid, consider the fact that for every Tweet President-elect Trump posts, he also links the same statement to his Facebook account. As strange as it seems, I haven’t heard one opponent suggest Trump give-up his Facebook account.
And just as people have a hard time taking Twitter seriously, the inverse seems to be true: The public is now taking Facebook seriously as a credible company worthy of being a legitimate news source.
Wow! When did this reputation change? Years ago, it seemed Facebook was a site for youngsters posting frivolous messages about mundane topics, such as so-and-so asking so-and-so to the prom.
The bottom line? Facebook grew up and Twitter remains an adolescent.
Facebook is dominating the 18-29 year-old demographic with 87 percent of everyone in this group having a Facebook presence. For those age 30 to 49, the number stablizes to 73 percent. More impressively, 63 percent of all adults age 50 to 64 have a Facebook account. The income breakdown is equally eye-opening.
Seventy-two percent of those earning $75,000 or more annually are on Facebook. The number actually increases to 74 percent for those earning between $50,000 and $75,000. Advertisers love Facebook and they remain on the sidelines for Twitter.
Investors are mirror-images of the advertisers. For the one-year period ending January 12th, Facebook has posted a gain of 30 percent while Twitter has given up 13 percent of its value. To compare, the S&P 500 is 18 percent-plus for the same time period.
In a few weeks, Wall Street and advertisers will be paying close attention to the earnings report cards of both Facebook and Twitter; and considering we ended what many would consider the optimal period for user interaction, if the earnings numbers are weak for Twitter, it should signify the end of the company. A poor earnings report will mean Twitter will not be in existence when Trump runs for re-election in 2020. And, it may not even be breathing in two years for mid-term season.
Our suggestion: Stay away from Twitter as an investment and consider a short position leading up to the earnings release on February 9th.
Disclosure: None of the Jones Falls Financial Directorate own a long or short position in Facebook or Twitter.