Time To Stop Caring About Twitter

| About: Twitter, Inc. (TWTR)


Twitter has reached its potential.

The market opportunity was smaller than anyone thought a year ago.

Show a profit, sell the asset, and move on.

A tweet came in this morning complaining about how the "default drama" at Valeant (NYSE:VRX) isn't stopping.

Well, it stops when we stop caring. Looking for an example? You're soaking in it.

Twitter (NYSE:TWTR), the stock, has gotten the big give-up. Down 61% over the last year, but you don't read a lot of columns talking about "hidden value" or a coming turnaround. This is because there is no hidden value, and there will be no turnaround.

This is not to say Twitter is worthless. Even at its present price, it is valued in the marketplace at $10 billion. But year-over-year growth continues to slow (it's now down to 36%) and net income remains elusive. The idea that a company built on the SMS format of 140 character messaging is now going to accept videos and won't count those links against the cap is not going to move the needle. Twitter's streams are increasingly packed with ads and the benefit of those ads keeps going down. The amount of real ad inventory, in the form of tweets in the stream, just isn't growing that fast.

Twitter is what it is. It's a jungle telegraph where news and celebrity intersect. Donald Trump may consider it "YUUUGE," but keeping a tweet stream up is mainly an elite activity.

I use Twitter to get traffic to some of my stories, especially on my personal blog. I use it to get a handle on what my peers in technology journalism are doing, and to keep an eye on news when it happens. While it's open eight hours per day, I don't pay attention to it for those eight hours. My guess is my attention is focused on it for no more than 30 minutes. And I'm in journalism! Frankly, the rest of you have better things to do.

There's a place where ordinary people get their equivalent of a tweet stream and they can get very deeply involved in it. That place is called Facebook (NASDAQ:FB). Facebook has no limits on the length of a post, you can get a lot of traffic without having a lot of friends, and limiting the number of contacts you "friend" there can actually make it more valuable, not less valuable.

Twitter might make a nice pick-up for Facebook, if only to capture the traffic of elites, but it's not going to be accretive to Facebook's earnings, its growth is going to continue to slow, and it is still overpriced at about five times revenue. Facebook is much better advised looking for things that will hit the mass market in 3-4 years rather than something that occupies only an elite market today. There may be some action in Twitter when the company finally puts itself up for sale, as with Yahoo (NASDAQ:YHOO), but who is to say it will gain a premium price even then?

If a tweet is not retweeted, it makes no sound. Twitter is a product of its time, it has reached its potential, and the best thing it could do at this point is maximize profit and hope for a sale. And there's the larger lesson from all this.

When we stop talking about an investment story, it's over.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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

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