Twitter - A Victim Of Short Term Thinking

Wall Street has an obsession, and now that he’s no longer accountable to Wall Street, outgoing Twitter CEO Dick Costolo isn’t afraid to tell them all about it. In a recent interview with the Guardian, Costolo talked about what really doomed Twitter (TWTR) when it came to the stock market:

“When we took the company public, I had an expectation that the market would evaluate us based on our financial metrics first and foremost,” he said. “I probably would frame the way we were thinking about the future of the company differently, understanding how we were in retrospect evaluated.

“You always want to keep focused on the long-term vision, yet when you go public you’re on a 90-day cadence and there’s a very public voting machine of the stock price that accelerates that short-term thinking.”

He’s got a point. If you take a look at how Twitter’s shares have performed since it went public in November 2013, you can see that the majority of the major spikes and dips have occurred on a 90-day cyclical basis.

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And while Twitter hasn’t necessarily had the strongest showing when it comes to net income, it has proven to be able to monetize its users effectively, including a 74% in revenue increase year over year for Q1 2015. But investors looked past the glaringly obvious win and went straight to the 302 million monthly active users (MAU) — which was up only 18% from the previous year and 4.9% from the previous quarter.

Investors have particularly gone to great lengths to compare that number with Facebook’s (FB) (1.44 billion MAUs, a 13% increase from this time last year). While the percentage is less, the actual number of users it represents is astounding. For example, Twitter’s 18% represents 46 million users, while Facebook’s 13% represents approximately 166 million. To analysts’ credit, comparing the two certainly doesn’t come out in Twitter’s favor, but all the same, it’s disconcerting to see a company like Amazon (AMZN), which has a $202.15 billion valuation (compared with Twitter’s $24.33 billion), garner Wall Street’s favor based solely on the long-term vision of the company, while acting like Twitter doesn’t deserve that same treatment.

That being said, it’s a credit to Twitter’s management to shrug off the haters and stick with what Costolo calls its “cohesive long-term strategy.” What’s the reason for sticking to their guns? Because they want the company to develop naturally. One instance he referenced was Lightning, a new set of features that help curate and promote live content on the social media platform.

“People have been asking why I didn’t do that four years ago,” he said. “Four years ago, the site didn’t even stay up. We were the only big site on the internet whose 404 [error message] was its own brand – the fail whale.”

Of course, Twitter’s insistence on patience likely won’t change Wall Street’s perceptions. The Internet has been aflame over the last few weeks over rumors — from an unknown source, of course — that Twitter is on Google’s radar for acquisition. It may make sense for Google (GOOG), considering how badly it’s failed to compete in social media with Google Plus.

But Twitter is still in hyper-growth mode. It still has legs to run and it’s still working on new products and features that will improve the service it provides. Of course, it doesn’t really help that executives have fled the company left and right over the past couple of years. And it most definitely hurts confidence to see Costolo himself resigning without any solid plan for someone to fill his shoes permanently.

But all in all, Twitter is still a good product and it’s here to stay, regardless of what Wall Street thinks. It has embedded itself so deeply into popular culture and has proven to be an invaluable asset to the media and news organizations. It’s not going anywhere anytime soon, so maybe Wall Street should catch on and give it a break.

Disclosure: None.

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