Quick Thoughts: Everybody Hates Twitter

sagawa

The monomaniacal focus on MAUs does TWTR a disservice – it is a lot more like YouTube than Facebook, and no one cares about Google’s MAUs. Project Lightning and an aggressive marketing campaign to educate consumers should stimulate engagement and keep the strong ad growth going. For now, TWTR is one of the few places to buy real growth – 64% growth in the face of 8% FX headwinds – at a discount.

The trading around TWTR’s 2Q15 earnings report was quite a ride for investors. At first, the stock rose more than 5% on sales and adjusted EPS that blew past expectations that had been tamped down after the widely reviled 1Q15 results. 64% top-line growth against a stiff FX headwind is nothing to sneeze at, and the $0.07 earnings number showed significant progress toward strong future profitability, even if the company is still dealing out shares to employees at a somewhat profligate rate.

Then came the second wave. First, naysayers glommed on to the fact that MOST of TWTR’s rise in MAUs came from users accessing the service via messaging platforms on feature phones rather than the fullfledged smartphone app. Fair enough, but Facebook, which doesn’t breakdown the number of its MAUs which access it via messaging apps, spent 10% of the company acquiring WhatsApp and its now 600M users for just the same type of access. Then, parsing the numbers a bit more, a new negative theme broke free – US MAUs were static quarter to quarter. By then, the stock had given back all of the rise and then some. At the end of the conference call, when management refused to give any information about the ongoing CEO search, TWTR shares settled to down more than 10% from the close.

This 2 hour frenzy of after hours action was a bit of a microcosm of TWTR’s life as a public company – fast out of the gate with big revenue growth and strong monetization trends, but slammed for its inability to post the kind of growth in registered monthly active users that had been delivered by Facebook. This investor fixation on MAUs has been a huge burden for the company, which is undoubtedly sorry that it had emphasized the metric so much in its IPO prospectus. It turns out that there are a lot of monthly visitors coming to TWTR and reading its content without registering. In this, it is a lot more like Google, which just threw in the towel on making its anonymous YouTube and Search users log in with Google+, than it is like Facebook, which bases its entire application around requiring each visitor to sign in. Google investors are happy enough with the billion plus YouTube users, even if they don’t know exactly who all of them are.

To that end, TWTR finally has some concrete plans to start monetizing the hundreds of millions of visitors that it claims to have – Project Lightning will let users immerse themselves in events and breaking news while getting relevant advertising, without logging in. A partnership with Google will lead new users to TWTR content. New marketing programs, long overdue, will promote and explain the value of Twitter to consumers long confused about its usefulness. Basically, a light bulb has come on above the heads of TWTR management, and maybe, the issues that have plagued it in the eyes of investors may be put behind it.

Meanwhile, I think the critics have gone a bit far. The Facebook favorite MAU metric is not fully indicative of TWTR’s assets – its critical mass of key opinion makers in every imaginable field, its timeliness advantage, the hundreds of millions who are aware of the service even if they haven’t registered. 64% YoY growth in the face of an 8% currency headwind despite the disappointing user number is evidence of the value of the platform to advertisers who understand the quality of TWTR’s interest data and the effectiveness of its native formats. Over a year ago, I pointed out that TWTR’s main problems were the poor design of its consumer app and the absence of effective marketing to sell its use case to the public. Finally, Project Lightening is due in 4Q, along with a real marketing campaign and, perhaps, a Chief Marketing Officer. Maybe this time the light at the end of the tunnel is not just another train.

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