Twitter has been a company long in search of a business plan. For years before it went public, people were wondering how this nifty little application could ever turn into a working profitable business. And despite much time passing, long after Twitter went public and shares have since cratered, people are still asking themselves: Will this company ever make money?
Last year, the company finally topped $1 billion in revenues, but still, it spent almost that much on its SG&A budget. A business has trouble when its marketing, management costs and overhead alone eat up all of revenues, to say nothing of its costs such as servers, bandwidth, electricity, taxes, and so. And research and development is another significant cost.
All told, Twitter lost more than 25 cents per dollar of revenue it generated in 2015. The company aims to become a leading web advertiser, but unlike Facebook, it simply doesn’t have the sort of platform that is easily monetizable.
People use Facebook because it is an extremely sticky platform. Just about everything a user wants is hosted within the platform. Pictures, friends’ updates, videos, games, chat. You can do it all without leaving Facebook’s friendly ecosystem. All Facebook has to do is interlace the occasional ad amongst all the content you want to see, for which they get a tiny cut of revenue. And by chance, if you click one of the sidebar ads, they get a big commission.
But the ads are hardly visible, just a bit of decoration amongst an interface designed to keep users there for hours. Facebook’s advertising is relatively non-invasive, and it is also highly targeted, since Facebook knows more about you than anyone else other than Google and possibly your mother.
Facebook knows where you live, your marital status, your age, your hobbies, where you travel, your education level. When you have a kid, they can advertise baby supplies to you. Have a friend get engaged? They’ll be happy to sell you wedding gifts. Post a picture of a new car? Bam, you’ll be getting insurance ads.
Twitter, on the other hand, has none of that. Twitter knows very little about you. What little it can glean comes in the form of 140 or fewer character messages, often in grammatically challenged pidgin English.
Twitter’s crude form of advertising mostly consists of sponsored tweets that have absolutely nothing whatsoever to do with whatever else you’re reading about. This author’s Twitter account gets almost exclusively OpenEnglish.com sponsored tweets. OpenEnglish is a site that offers English tutoring for foreigners. Your author writes in English, and his Twitter followers almost all use English exclusively. There is simply no logical reason for Twitter to suspect this author would spend a dime learning a language he’s already spoken since infancy.
Other than advertising in the feed, Twitter is trying some other ideas to modernize the platform more recently. Among them, Twitter is making direct messaging easier and reducing hurdles to using the site in this way. This is a good step.
Twitter has been losing lots of ground to private chat sites and even platforms such as Facebook. While Twitter has achieved some mass market appeal, it’s never gone totally mainstream. Something about its slightly clunky layout (especially away from mobile) and its techie feel have repeled many mainstream users. Better private messaging could keep casual users around.
The big push of late has clearly been Periscope. Periscope is a rather innovative live streaming app that remains well ahead of Facebook’s latest offering in the space. Periscope also won app of the year.
Twitter as a whole has a reputation for being unfriendly to average users and having a stiff learning curve, but Periscope is doing a good job of bringing casual users back and giving Twitter a second chance to engage. Periscope is around roughly 4 million daily users now, a significant but not overwhelming number, however it continues to grow quickly.
Finally, Twitter has just announced that it is working on a way to allow users to post up to 10,000 characters, a virtually unlimited amount, per message. The usual 140 characters would show in a feed, but offer that users could see more, up to the whooping 10,000 limit.
People have already figured out how to get around the limit by posting images of large blocks of test. Still it is an unwieldy step to convert the text block to picture. By allowing people to rant at will, Twitter threatens to destroy its crucial selling point, brevity, that made it so unique in the first place. There are clearly some plusses to allowing longer tweets, but it seems the negatives may outweigh the gains.
Overall, Twitter remains far from profitability, and recent developments don’t seem sufficient to make the stock a compelling turnaround story. For people who like the site, keep watching, and perhaps the investing rationale will improve. But for now, it seems best to stay away from Twitter stock.