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Fundamentals

Written by Ophir Gottlieb, 11-25-2015
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There's a window for Twitter to follow in the footsteps of the Telegraph and the Telephone as the next major step forward in communications. It can be the end-all-be-all of real-time communications on a global scale.

But, Twitter also faces existential risk if that opportunity is not realized. Let's look at five breathtaking images, each of which is ground breaking and reminds us, Twitter isn't dead.

CHARTS
First, let's isolate Twitter and just look at the company's revenue revenue rolled up into trailing-twelve-month (TTM) periods.



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Note that while user growth has all but stopped, the monetization of its user base is exploding. Next, let's plot revenue growth in the last year on the y-axis and rank Twitter, Facebook and LinkedIn on the x-axis.



Yep, even in the context of its two closest competitors, revenue growth is booming.

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If we compare Twitter to Facebook and LinkedIn in terms of price to sales, we'll find something else stunning. Even though Twitter is growing revenue faster than its social media peers, it has the lowest valuation a measured by price to sales. In English, the stock market is giving Twitter less value per dollar of revenue than FB and LNKD, even though its growth is superior.



If you're looking for a reflection of the stock market's confidence in Twitter to turn its business around in terms of user growth, this is it , and the market is saying, "no, not really."

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Now, let's expand this peer group and make it all technology companies with market caps between $15B and $30B. This time we will equal space the x-axis(rank) and plot gross profit on-year growth on the y-axis.



Twitter is in fact growing its gross profit faster than every technology company in this peer group. Again, let us understand the difference between user growth and revenue growth. The former is dead (for now) and the latter is booming.

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PROFITABLITY
The sobering truth not reflected in all of these charts, of course, is profitability, or lack thereof. In our final chart, we plot Twitter's net income (TTM) in the bars.



The bottom line is, Twitter is losing money, even with its revenue growth, and in reality, the revenue growth isn't really making a dent. Now that Jack Dorsey has been named full-time CEO and is allowed to also be CEO of Square (SQ), one of Jack's first moves has been to trim 8% of Twitter's staff with 336 layoffs.

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While no one likes to see jobs lost, this was a badly needed move. Here is a chart from Statista showing the absurd employee growth in Twitter over the last few years.



OPPORTUNITY
Here it is, plain as can be. Twitter needs more users.

Twitter has competitors on its heels. Regardless of what the tweeps think about Facebook, if Mark Zuckerberg turns his attention to real-time communicase before Twitter masters it (and then owns it), friends Twitter is done. Facebook has 1.55 billion monthly average users and just crossed 1 billion daily active users. And let us not forget about other social media platforms getting awfully close to the real-time event driven mastery. We're talking about Meerkat (a direct competitor to Periscope), Snapchat, and many, many others.

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Twitter must see a jump in user growth from 'Moments,' Google search and Periscope (or some combination), even if it's just circumstantial. Moments of course is brilliantly aimed at pushing Twitter's only truly differentiated core competency forward -- timely delivery of information and news.

We know the argument for Periscope, which is simply that mobile video is crushing it and found out that large advertisers are happy to work within the confines of unscripted live feedback as long as they can reach millenials. And finally, now that tweets are indexed in Google search, triple in the number of people getting exposed to Twitter. The hope is that user growth will reignite.

It's do or die for Twitter. It will grow users and it stock doubles or it will shrink and it's stock plummets to unseen lows. That's just it.

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