Twitter (TWTR) Stock: And They Called Me Crazy!

Twitter Inc (NYSE: TWTR)

Twitter has been an incredibly interesting stock to follow. While it’s not going anywhere, it still has been fun to watch. Recently, I wrote a post about the stock saying that I believe that TWTR will fall to $10 or lower pretty quickly. After writing the stock, I received several emails. Honestly, few of the people that sent the emails actually agreed with me. However, I did have an inbox flooded with statements like “You’re Crazy!” Well, here we are, less than a month later and the stock has fallen from well over $18 per share to around $15 per share with no end in sight… doesn’t seem so “Crazy” now does it? Today, I’ll explain why I believe that TWTR is still greatly overvalued and will likely fall to $10 per share or lower. So, let’s get right to it…

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Dialing Down To The Number One Issue That TWTR Faces

Twitter isn’t facing many problems. In fact, there is only one major problem that the company needs to work through. Nonetheless, it’s a very big one. The big problem at TWTR is users. For more than a year now, the company has struggled to bring in new users and maintain them as regularly active users on their social network.

Over the past year or so, this problem has spiraled out of control. In fact, in late 2014, investors started to call for the resignation of the then CEO, Dick Costolo. In the second quarter of 2015, investors finally got what they wanted and Costolo resigned from his post; leaving Co-Founder Jack Dorsey as the CEO of TWTR on an interim basis. From there, Twitter started to search for a new long term CEO. However, the new leader of the company would have to be well known and well established. Unfortunately, few great captains are willing to take on the role on a sinking ship, and TWTR struggled to find a new CEO. As a result, after several months, it was announced that Jack Dorsey was no longer the interim leader of the company… he would be taking on the position full time.

Dorsey Was A Very Bad Move For TWTR

Being a co-founder of the social network, investors believed that Jack Dorsey would be the guy for the job. In fact, they rejoiced when he took on the role as permanent CEO of Twitter. However, all that glitters isn’t gold my friends; and Dorsey is one of those in the category of “Isn’t Gold!” You see, many investors seem to have forgotten that Dorsey has played the CEO role at TWTR in the past. His stint as leader of the company lasted 2 years. In this time, he was so focused on partying and learning how to draw that he simply couldn’t seem to focus enough time on TWTR. As a result, he was fired from the position.

Now, here we are years later. Sure, Dorsey has aged a bit, and with age comes wisdom. Nonetheless, he’s still not the man for the job. You see, this time, Dorsey isn’t worried about partying and drawing. However, he still doesn’t have the time to focus on TWTR. Twitter, as a struggling company requires quite a bit of love and attention to grow. This is more than an 8 hour per day job. However, Dorsey isn’t only the CEO at TWTR. He is also the CEO at Square, a newly public company. Between the two, he simply doesn’t have the time to focus on the problems at hand in the social network, and that shows in his actions since he took on the role.

What We’ve Seen From Twitter Under Dorsey’s Leadership

Considering the state of Twitter and the primary problem they face, you would think that Dorsey would be working on the user experience, advertising to bring users in, and other user-centric actions. However, that’s the furthest thing from what we’ve seen. In fact, Dorsey has been focused on advertisers. He figures that if he brings enough paying advertisers to the TWTR platform, user growth won’t be an issue… Well Jack, I hate to say it, but you’re wrong.

The reality is that there are few things that turn users off like advertisements. Sure, we all know that ads pay for the system, and any website, including Twitter needs them. However, over advertising leads to a poor user experience. Considering that TWTR is already known to have a poor user experience, the effects of these decisions are exacerbated. As a result, the user problem has yet to go away, and isn’t likely to any time soon.

What I Expect To See Moving Forward

Moving forward, I don’t believe that good news is in the cards for TWTR. In fact, if they keep going this way, the big story isn’t going to be user growth, it’s going to be user retention as those that are faithful on the system start getting frustrated with the massive amount of ads shown. With that said, I still believe that $10 per share is in the near future for TWTR… we are nowhere near the bottom here my friends!

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What Do You Think?

Where do you think TWTR is headed moving forward and why? Let us know your opinion in the comments below!

[Image Courtesy of Flickr]

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