You can all just ignore the Wall Street flunkies: Twitter is not doomed
Published 14/02/2016 | 02:30
Is Twitter doomed? You'd be forgiven for thinking so. After its financial results last week, everyone is tut-tutting about its "flat user growth" and its "paltry" 60pc revenue increase.
It'll never replicate Facebook now, say the pundits, so it must be a flop.
However, if anything is becoming clear, it's that we're listening to the wrong people.
Largely, they're Wall Street flunkies, and they have us thinking that unless a company such as Twitter is on its way to a billion users and $10bn profits soon, it's a waste of time.
Somehow, this psyche has polluted mainstream analysis of tech companies generally. It's not enough that a company makes a compelling product and makes money. It has to be the next Google. Otherwise it's lame.
I'm no Twitter cheerleader. Although I use it, it can be very frustrating, but it's still a young company finding its way, and it's not doing badly at all.
Let's look at those published financial results for a second.
Last year, Twitter grew its revenue from $1.4bn (€1.25bn) to $2.2bn (€1.96bn) - a 58pc increase. This is modest by Facebook standards, but it shows a product growing its commercial base.
It's doing less well on profit. It lost $521m last year, down from $578m (€514m) the year before.
It definitely has problems there, but the company is still building out its advertising business: it doubled its number of advertisers last year.
Perhaps the biggest criticism aimed at Twitter right now lies in the number of users. The company revealed last week that its user base hasn't grown in the past year. It's still at 300 million worldwide.
For the pinstripe brigade of Barron's and the Wall Street Journal, this spells failure. Doom. Obsolescence.
Should we accept that analysis? Is Twitter a flop if it has "only" 300 million regular users? Or are we being steered away from a more balanced perspective by people who primarily care about big financial bets and short-term returns?
Put another way, who really cares if Twitter only ever makes a couple of billion in revenue and a modest profit? Will that influence whether you continue to use the service?
There's a scene in Oliver Stone's 1987 film Wall Street in which the veteran trader Lou Mannheim (played by Hal Holbrook) takes a young Bud Fox (Charlie Sheen) aside to give him some advice about investing.
"Stick to the fundamentals," Holbrook's character says. "That's how IBM and Hilton were built. Good things, sometimes, take time."
Leaving aside the IBM comparison, it seems to be a point worth considering. If you look at Twitter's fundamentals, you might think differently about its long-term prospects.
1. Is Twitter useful? Yes.
2. Do its users rely on it? Yes.
3. Is there much evidence of users abandoning it? No.
4. Are there rival services that look like they could replace Twitter's particular function? No.
Obviously, this is the view of a non-investor (me). The counter-argument to this analysis is that a soft growth trajectory deters investors, which could limit future cash flow, which would in turn hamper development of the product.
The share price has certainly taken a beating, now at only a third of its Wall Street high point two years ago. Those investors are probably cursing the company.
But to be frank, that's their problem. They jumped on a stock they thought would make them money. It hasn't. At least, not yet. It may never make them much.
However, all that can really be said about the validity of their commentary is that they're annoyed on behalf of their own bank accounts. And so follows the narrative of the FT, WSJ, CNBC and other squawkers.
With respect to all of them, judging Twitter's inherent value and long-term prospects is not as simple as a quarterly earnings report.
Twitter has a very strong niche.
Those who tweet rely on it in a way that few rivals match. Its core users - media, celebrities, news addicts - make up a very committed demographic that no other service presents in such a focused way.
If it never gains another user, it will remain one of the most powerful platforms in the world, far more influential than all but a handful of global media outlets.
This is not to say that it shouldn't aim for more users, but even if it never gets any, it will be a long time before Twitter becomes irrelevant in the way that some commentators are predicting.
Sure, the company should accelerate its commercial viability, but don't be fooled by the suits: Twitter isn't going anywhere.
Sunday Indo Business