Twitter Has 99 Problems But This Isn't One

| About: Twitter, Inc. (TWTR)

Summary

Twitter's main problem isn't its use of text.

Its problem is its public nature limits its use case.

Twitter should not abandon text and investors should not buy Twitter if they see video usage increase.

WhatsApp will continue to ride the messaging app growth wave.

Recently Jim Stewart of the New York Times was being interviewed on CNBC about social media. The video has subsequently been titled "Millennials Over Typing?" The video details the problems Twitter (NYSE:TWTR) is having compared to the success of Facebook (NASDAQ:FB) and Snapchat (Private:CHAT). As referred to in the title Jim mentions his conversation with a millennial who says he/she doesn't like Twitter because it has too much text. The likely reason why this was made the title of the video is because it is a new criticism of Twitter. I will analyze why this criticism is incorrect in this article.

This article is not meant to disparage Jim Stewart in any way as anyone can make a mistake. The point of the article is to zero in on Twitter's problems. When an investor sees Twitter, he/she must not have the wrong takeaways because then this can lead to failed analysis of other social media companies. Clearly Twitter does have a problem that has limited its growth, but text is not one of them.

My question to anyone who believes there is a new trend that goes against text is "why are messaging apps doing so well?" As you can see from the chart below, messaging apps have now surpassed social networking apps. Messaging apps are, in fact, text heavy so there is no decline in text. Millennials are simply using apps such as Whatsapp to communicate with their friends instead of Twitter. You can certainly argue that messaging apps include video, GIFs, and videos, but this is exactly the trend Twitter is going in as well. I don't have the percentage of text vs. video content that occurs in private messages, but it is likely similar to Twitter judging from my own anecdotal experiences.

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The problem Twitter has with growth is the exact reason for its success so far, so there is nothing it can do to become more mainstream. One problem for Twitter is how public it is. There will always be people who want to share things with their friends instead of the world. Most readers recognize that anything you post on the internet is not guaranteed to be private, but in most circumstances a family photo isn't the type of content to be leaked. Family photos are one example of the type of content users want to upload on Facebook and Instagram, but not on Twitter. Twitter mentions being public as one of the main positives for its platform, but as you can see, it can limit its usage. Users can make their profiles private, but this disables retweets which is a core function of the app.

This public nature limits conversations among friends as people do not want their chats with friends to be public. This is the reason behind the popularity of Snapchat as the semi-public posting on Facebook became too much for some users. This causes people to not see their friends on Twitter when they create an account. Most other social networks are meant to communicate with friends, so this confuses users. Investors and Twitter itself mention that Twitter is not user friendly and they are correct. However, the confusion cannot be fixed by changing favorites to likes, because these quirks were never the reason users were confused in the first place. Users are confused about why the platform is necessary, since most of their friends and family aren't on it.

With this scenario being in place for a while, Twitter has made the strategic decision to encourage users to follow their favorite celebrities. Twitter is a broadcasting network like YouTube which means the top voices on the platforms are the reason for joining. In YouTube's case it has top broadcasters like PewdiePie who produce unique content on it which keeps users coming back. Maybe 5 years ago Twitter was a place where unique announcements were made, but Facebook has now become almost equally relevant in that respect. Even if a post is made on Twitter, the news instantly spreads to Facebook anyway. Twitter is a megaphone that Donald Trump uses to make political points, but anyone who owns a computer, television, or even radio can find out what he typed without using Twitter at all. Twitter is short form content, so there is no backstory for users to discover on the platform.

As you can see from the Donald Trump example, Twitter is simultaneously not dying and not growing. It is great at what it is: a megaphone for celebrities and news reporters. However, this inherently limits growth.

The reason for writing this article was twofold. The first is that misdiagnosing Twitter's problems can confuse investors on what changes can move Twitter in the right direction. If text is really the problem, then this would mean the fast growth in usage of videos, pictures, and GIFs could solve Twitter's problems. However, this will not solve Twitter's user and time spent problems. This proof is already self-evident as video growth has not turned around the ship.

The second point is that investors need to not view text as a 'dirty' word. Millennials are still texting on messaging apps. This means apps such as WhatsApp are not in danger of irrelevance because they rely on text. Facebook may have a problem monetizing WhatsApp, but it won't have a problem gaining new users and growing the amount of time they spend on it.

The chart below on the Scout Finance App shows the performance of Twitter stock which is not good. The reason why the stock was hyped so much was investors thought it could expand to many more users than it has now. At some point Twitter needs to re-adjust to the fact that it will probably not reach 1 billion users and cut costs, so it can be profitable with the amount of users it has now.

Twitter has had negative operating income for the past 3 years. This is unsustainable. Changes need to be made so the business can be profitable in the future or Twitter could lose the valuable megaphone it has created.

Conclusion

Of all the problems Twitter has with user growth and profitability, the fact that it has text is not one of them. Twitter shouldn't abandon text as it allows it to be a more valuable platform for hard news than Snapchat can ever be. The growth of messaging apps shows that text is still valued by millennials. WhatsApp should continue to grow its user base and time spent if it can ride this trend like it has done in the recent past.

Disclosure: I am/we are short FB.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.