Investing in Twitter: What to consider
Despite the fact that it is a very popular social network, Twitter has seen its ups and downs. Since it went public in 2013, the Twitter stock has decreased in value significantly. At first, the stock climbed, but as the company failed to produce a business model that would make it profitable, losing tremendous amounts of cash in its 10+ years of operations, it went on the decline. However, the company is still considered a pioneer in the social network space and has established itself as the go-to platform for instant news updates.
Who should include Twitter in their portfolios?
Thematic investors in the tech sector: Twitter is a very recognizable name in the tech world, and as such, is watched closely by traders and investors. Due to the fact that the Twitter stock has dropped significantly since its IPO, some might say that it has nowhere to go but up.
Social network enthusiasts: While many social networks came and went, Twitter has shown that it can last over time. Therefore, those who believe the sector will become more profitable, could consider investing in Twitter.
Day traders: The Twitter stock has seen days in which it fluctuated quite dramatically. Therefore, fundamental investors, who follow events such as earnings reports, may be able to turn a short-term profit by opening either a short or a long position.
Acquisition hunters: While all of the reported bidders pulled their offers, it is still possible for Twitter to be acquired. If the acquiring company will be one which presents a strategic partnership and the chance of a viable business model - it could drive Twitter’s stock price up.
What drives Twitter’s stock price?
Profitability: While many factors could affect Twitter’s stock price, a main reason for its movement is profitability. The company has been losing money steadily over the past few years, therefore, while it could be seen as a bad investment by some, any improvement in revenue could drive its stock price up. Despite companies like Facebook and Snap acting in the same sphere - Twitter has positioned itself as unique, with its short post format, fast-paced news updates and the creation of hashtags. The need for Twitter is quite apparent, especially in the American market, where every major news event generates tremendous activity on the social network.
Partnerships: Another main factor driving the Twitter stock is the partnerships it has in place. Since it is such a popular social network, known for the immediate nature of the stories shared, it has several partnerships with organizations for whom such immediacy is relevant. Alongside organizations such as the NFL, which signed a partnership with Twitter to stream and share game-related content, Twitter is also continuing to expand into the live streaming field, partnering with companies such as Live Nation, to stream live concerts via the social network.
Twitter stock: Innovation is a must
The main challenge facing Twitter is promoting user engagement and generating cash revenues. Former Microsoft CEO Steve Ballmer, who is a major shareholder in Twitter, has said that he has great faith in co-founder and CEO Jack Dorsey, calling him “a very creative, innovative guy.” However, over the years, Twitter has tried various innovations that failed, such as its music service, the short-video platform vine, and live-streaming service Periscope. While the latter is still alive, it quickly lost its popularity and faced competition from other social media giants, such as Facebook.
And yet, Twitter is still a tech company, operating in a space in which those who don’t innovate get eliminated. The company has ramped up its live-streaming game in recent years, so perhaps its long-awaited rise back to power will come from that direction. With more and more people around the world opting for online content over traditional means of broadcasting, Twitter’s massive user-base and fast-paced nature may be the winning combination needed to pull off a live-streaming success story.
History of Twitter
Founded in 2006 in San Francisco, Twitter was a major player in the Web 2.0 revolution. Initially advertising itself as a platform for sharing what users are doing right now, its 140-character limits and promotion of hashtag-use soon positioned it as a new form of communication.
The company went public in 2013 and first saw its stock skyrocket. However, the enthusiasm was short-lived, and since 2015, the Twitter graph has shown a constant decline, reaching an all-time low in mid-2016.
Over the years, there have been many rumors about the company being approached with bid offers from tech giants, but no deal was ever closed. Most of the time, the reason for Twitter not being acquired was attributed to it not being able to produce a viable business model and/or asking for too much money. And yet, the company’s user base has been constantly growing, with more than 300 million users as of 2017.
Conclusion: Twitter could still come back
The Twitter story is a tricky one, full of ups and downs. The company is constantly trying to introduce new features and attract new partners, while still not unlocking how to monetize its users effectively. While user-heavy companies often receive a grace period if they show constant user growth without generating revenue, it seems that this period has passed for Twitter. Therefore, if it is to recover, Twitter must introduce successful, long-lasting innovation, find a way to monetize users, or find a buyer that will steer the company in the right direction.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.