Twitter – The blame game

Reply to this post

Costolo was not the source of Twitter’s problems.

• Twitter CEO Dick Costolo has bowed to pressure and resigned but in my opinion his leaving solves nothing.
• The initial reaction was to put the stock up 7% but when interim (and maybe permanent) CEO Jack Dorsey stated that there would be no change in strategy, the rise was moderated to just 2%.
• This strongly indicates that the real problem at Twitter is that the market wants to see it move into a new direction so that user growth can resume.
• The assumption here is that users are directly tied to revenues and in many ways that is true but I think just focusing on user growth is the wrong way to go for Twitter.
• The biggest problem Twitter has is its narrow focus as its services only cover a very small part of Digital Life.
• RFM estimates that users can spend just 9% of their time with Twitter because Twitter has no service for many of the other activities that users carry out on their smartphones.
• In contrast users can spend 61% of their time with Google, 71% with Microsoft and 73% with Yahoo! should they choose to do so.
• The more time a user spends with a service the greater the monetisation opportunity is.
• Hence for Twitter, the monetisation opportunity is fundamentally limited unless it can spread its wings wider and encourage users to spend more time in its services.
• I have previously forecast, (see here), based on RFM’s estimates and its narrow focus, that Twitter’s revenues will flatten out at around $2bn annually.
• This seems to be exactly what is happening as quarterly revenues are currently around $450m-$550m.
• Given its narrow focus, Twitter has done a superb job at monetising the opportunity that it has created but to grow from here it must extend its coverage of Digital Life.
• This will involve substantial investments and meaningful risks but I think that it is the only way forward.
• Dick Costolo has taken a pre-revenue company and turned it into one of the best monetisation machines in the industry but perhaps he is not the chap to decide how to reinstate growth.
• The market will also be unsettled by persistent management turnover that has been seen in the last year which also gives the impression of internal strife and disagreement over strategy.
• With its current outlook, I think that a fair price for Twitter is in the low thirties but I suspect that the stock will touch lower levels once the market realises that growth really has ground to a halt.
• Twitter needs a bold, decisive strategy to bring it back to life and I suspect we will not see this before 2016.
• In the interim, I prefer Microsoft and Google in the mobile ecosystem as Twitter’s ship is going to take some time to turn around.