Twitter’s share price has taken a number of hits since April this year. The company faces a long list of challenges, including management departures and a lack of user growth.
On top of these challenges, it is criticized for lagging far behind rival Facebook in key metrics. But is it realistic to compare it with Facebook and set very high expectations for growth?
“Twitter and Facebook are different products, and it doesn’t make sense to compare their growth and revenues,” said Kartik Hosanagar, professor of technology and digital business at the Wharton School of the University of Pennsylvania.
An article published by the Wharton School titled “Will Twitter Remain in Facebook’s Shadow?” raises this fundamental question about user growth.
Twitter’s service is used by many high profile figures including politicians. According to Hosanagar, Twitter’s service appeals to a more professional audience, whereas Facebook has more widespread appeal. So the slowdown in user growth is not the fault of Twitter’s management entirely.
However, since the IPO in 2013 and up to the second quarter of 2015, Twitter has increased its user base by 19.2 percent to 304 million users. During the same period, Facebook’s user base has soared 35.5 percent to 1.49 billion users.
As a result, Facebook’s shares have risen 132 percent since its IPO in 2012. In contrast Twitter (TWTR :NYSE) is trading at $27, a little above the IPO price of $26. After rising to $53 earlier this year, shares have crashed.
“Difficulty in using the service, as well as mediocre adoption by the mass market, are some reasons why Twitter’s user growth has not taken off,” said Anthony Noto, Twitter’s CEO, during the company’s second quarter earnings conference call in July.
Despite the negative news on user growth, Twitter reported a 61 percent increase in revenue and a lower net loss compared to last year in the second quarter, even beating Wall Street’s expectations.
However, lower user engagement on the site increased pressure on the company. For the second quarter, Twitter said the ratio of daily active users to monthly active users was about 44 percent, compared to 48 percent for the first three quarters of 2014. User engagement has come down in the last few quarters.
The efforts to find a new CEO, as well as attracting and retaining employees, is another struggle the company faces. CEO Dick Costolo stepped down on July 1. Several product executives have also left the company this year.
Twitter’s headhunting firm has approached former Cisco executive Padmasree Warrior and CBS Interactive boss Jim Lanzone, according to a Bloomberg report. Ironically, such news and rumors are posted on Twitter with the hashtag #goodlucktwitter.
“I have practiced 35 different ways to say this, I am not going to make any comments with the CEO process,” said Noto on Sept. 16 at the 2015 Deutsche Bank Technology Conference.
The company paid $175 million in stock based compensation in the second quarter to attract and retain employees—the main reason for the financial loss.
The company is also rolling out new products and initiatives to help improve its marketing to potential users. Twitter should be as easy to use as “looking out your window,” according to co-founder and interim CEO Jack Dorsey. However, it is not. So the company is focusing on simplifying the product to increase its user base.
Project Lightning is one initiative launched recently with the goal of creating simplicity in the user experience. The company also plans to launch media campaigns to build awareness on how to use the platform, which is the biggest fundamental shift in the product, according to Noto.
The company will continue to look for new revenue streams as well. Twitter and Google have recently teamed up to provide media houses and publishers a better and quicker platform to display their content on smartphones. The new solution will help readers see stories from “cached” websites instantly.
Twitter has also struck a deal with Google to provide access to tweets within search results.
Despite all the product and revenue initiatives, the company is still very careful and is setting low expectations for user growth, at least in the near term.
Professor Hosanagar says it is too early to be negative about Twitter. “I think Twitter has a good and viable business but will likely be in Facebook’s shadow always in terms of the number of users and monetization per user.”