Even after a sickening 20% drop in Twitter stock on Friday ( July 27), TWTR still looks significantly overvalued particularly when you look at the causation for the drop and then compare TWTR to other social media plays that have higher growth rates, more products and diversification and therefore less risk.
A sharp decline in user growth
TWTR’s latest quarterly report shows a sharp deceleration in monthly and annual user growth. Monthly active users were 335 million –a decline from 336 million in the first quarter, San Francisco-based Twitter said Friday in a statement. Though that measure was up 2.8 percent from a year earlier, the company expects monthly visitors to fall again in the current period. One of the most important drivers of growth for TWTR is now nil. When revenue growth sputtered and flatlined in 2016-17 TWTR swooned over 40% from a high of $25 to $14.The forward delta of TWTR’s revenue growth was expected to decay in the next several quarters even before this negative guidance.
Gross margin pressures are increasing
Twitter will have to invest in increasing its marketing and sales efforts to reinvigorate is the top line growth rate of monthly and daily users which seems to have hit a plateau.
Fake accounts purge: Reported by the Washington Post to be over 70 million, or nearly 20% of TWTR’s base, is a wake-up call to current advertisers to carefully review their r social media purchase options. This will likely pressure operating margins and pricing for Twitter from its currently lofty levels of 70%.
Fake accounts for an ongoing problem
Your humble scribe has been a victim of fake accounts and identity theft on Twitter and has tried numerous times to have them shut down and was rejected. After many unsuccessful attempts to reach human ears, a meager complaint was lodged with the Better Business Bureau.
Such fake accounts create higher barriers to filter out fake accounts to get back to adding “real” accounts, again adding to the cost of goods sold.