How Much Trouble is Twitter Really In?

Quite a lot, it seems.

Twitter (TWTR) is in a world of hurt. Over the last several quarter, user activity fell steadily. The company is not even making up new metrics that would make things look better. The stock’s decline is in line with the fundamental deterioration in the company’s fundamentals. At a market capitalization of $12.23 billion, Twitter is still expensive, and still very relevant in social media. What is Twitter worth?

Executive departures

Twitter faced an exodus of executives on January 24. Alex Roetter (engineering), Katie Jacobs Stanton (Media), Kevin Weil (Products), and Jason Toff (Vine head) left Twitter.

The real problem

Investors may have foreseen the decline in activity, and therefore its ability to attract advertising, months ago. A graph showing mentions for “retweet” fell from a peak of 97.5 million in August 2015 to 52.04 million on January 24 2016:

Source: www.tickertags.com

Conversely, mentions of “Facebook” (FB) barely changed. Mentions actually increased from 13.2 million to 14.7 million.

Mention for Twitter also fell, but this is in line with the drop for the number of times Facebook was mentioned:

Source: www.tickertags.com

“Tweet” and “retweet” are two fundamental actions in Twitter. Mentions for both verbs fell in the same period, the data clearly supporting declining interest for the social networking site:

At its current valuation of 29 times forward earnings and five times sales, Twitter’s not a value stock. Shares closed recently at $16.08, but may have further to fall. This depends on two things: first, declining appetite from the market for risk and second, a lack of buyers emerging.

The lower Twitter falls, the more likely someone will buy the firm. Alphabet’s failed Google Plus (GOOGL) networking site would benefit from Twitter. Search would also have more useful data if Google were to acquire and integrate Twitter’s content into its search algorithm.