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Twitter: Are Customers The Problem?

|Includes: FB, Twitter, Inc. (TWTR)

Twitter (NYSE:TWTR) is arguably the world's second most popular social media platform. However, from a business standpoint, the company has failed to live up to its billing. Twitter's stock price is now down more than 75% from its all-time high of $69 achieved just two months after going public in November 2013.

At the current price of about $16.80, those who invested in Twitter's IPO are still making losses of about 35% on their initial investment in the company, and based on the current trend, there seems to be no hope of a major rebound.

The company's main challenge over the years has been to monetize its user base, but last year, it came up with an interesting program that will help it receive up to 50% of video revenue generated by individual content creators. This adds to one of its other popular revenue generating schemes, "The Amplify Publisher" program where it gets 30% revenue share.

Twitter's topline has been growing tremendously over the last four years, thanks to its intensive sales and marketing campaigns that have spearheaded an impressive customer acquisition project. However, while the revenue part has benefited significantly from this high-spending sales and marketing drive, the company's bottom line has been affected significantly.

Illustratively, at the end of the year 2012, Twitter's annual income stood at just over $300 million while its net loss was at around $80 million. However, since then, revenue has grown to top $2 billion mark with $2.2 billion reported for the 2015 financial year while the net loss has grown to about $521 million.

Just to show how the company's sales and administrative costs have affected its ability to make profits, it posted $265 million in SG&A in 2012 while the figure for the year 2015 stood at a staggering $1.94 billion, taking up 87% of the total revenue reported for the period.

Yet, the company's problems do not stop there. While its platform is one of the best for companies looking to run their marketing and advertising campaigns, most people actually do not use its premium services.

Some have established ways to make the most out of their memberships on the platforms, and as reported on iContact, there are pretty a number of ways in which small businesses can use the platform without having necessarily to pay a dime for it.

Twitter has some of the most impressive online advertising tools, including the ability to follow, share and endorse content posted by users operating in the same industry. It's ability to engage users via the (#hashtag, $dollar sign) and other tools enables users to cross-pollinate whatever content they share easily thereby widening their reach.

As such, it is easy for an account with a few followers to reach many people with its tweets. That is not the case with other platforms like Facebook (NASDAQ:FB), where the hashtag is not quite as popular.

Small businesses and even large corporation have realized this opportunity and are taking full advantage of it thereby helping them to cut their marketing and advertising costs. This means that Twitter and premium content creators have to take a cut on their potential revenues.

Several reports have faulted Twitter's business model for its failings, and looking at just how much it's managed to grow revenue over the last four years compared to the change in its bottom line, then the critics might as well be right.

With Twitter, you can easily get your posts cross-pollinated, not just across the platform, but also across to other social networks. Sharing is easy, while sending a post viral is even easier. The fact that it limits the number of characters in a single post also does not help much.

If you are viewing a post posted via Twitter on Facebook, you can literally see everything as it appears on Twitter. This means that there is no need to follow through to read more on Twitter.

Conclusion

In summary, it looks as though businesses, both large and small need Twitter as much as the social media platform needs them. However, while Twitter wants to make as much money as possible from its users, not everyone on the platform is eager to use its premium services .

The company's business structure does not create the required initiative to use premium services because users can still get a lot of traffic to their websites even without spending a cent. All they have to do is tweet well, engage, and share widely.

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