When you think about the most popular social networks online today, what are the names that come to mind? If you're like most people, the first two names you'll think about are Facebook and Twitter. The simple fact is that they are both overwhelmingly popular. However, Twitter has been facing a big issue for quite some time now; and the issue undoubtedly affects the company's earnings. So, what's the issue? New users! The company has struggled to bring new users to their platform and retain them for the long term. As a result, they've come up short on their most recent earnings report. So, today we'll talk about the earnings report we saw from Twitter, steps they've taken to combat the new users issue, and what we can expect to see moving forward.
Twitter's Earnings Report
As expected, Twitter released their earnings report last week. Unfortunately, that was the only fact that met expectations. Their report showed that they missed top line revenue and earnings per share estimates from both analysts and their own guidance. Revenue for the quarter came in at $436 million; far short of analyst expectations of $457 million and missing their own guidance at a minimum of $440 million. For the quarter, earnings per share came in at $0.07; also a miss from expectations.
Twitter's Plans To Fix Their Biggest Problem
There's no doubt that the biggest problem Twitter faces is the fact that they are struggling to bring in new users; and those they do bring in, aren't being retained at the rate they would like to see. So, recently, we've seen two big pieces of news from the company that aim to change that…
- Firehose Feed – Along with the release of their Q4, 2014 earnings report, Twitter announced that they would be opening their Firehose feed back up to Google. The Firehose feed is a feed that includes all data traveling through the Twitter system. While they opened the feed to Google in the past, they closed the option to ensure that people would still have reason to watch Twitter news feeds. However, in an attempt to bring their brand to more and more users, the company opened this feed back up to Google. As a result, Twitter results show up more often in Google; causing those who don't have an account to think about signing up and those who are not active to consider signing in more often.
- TellApart – In more recent news, Twitter announced that it would be purchasing the advertising tech company known as TellApart for about $530 million. The business helps e-commerce sites target customers on their phones, and according to Twitter CEO, Dick Costolo, it should help bring more value to new Twitter users. Here's what Mr. Costolo had to say about the acquisition…
“To grow our user base, we need to improve new user retention and our strategy here is to provide immediate value and a compelling timeline the moment a user signs up.”
What We Can Expect Moving Forward
As a binary options trader, your job is to spot and capitalize off of trends. With that said, there are a couple of trends you'll want to watch for moving forward. First off, in the short term, look for downward breakout activity. The simple fact is that investors aren't happy about missed earnings, and this will most likely cause heavy short term volatility in the price of the stock. In the long run, there are two possible outcomes. First, if Twitter proves that the Firehose feed and TellApart acquisition are driving more users and helping with retention, we can expect to see big uptrends on the news and massive gains in the long run. However, if over the next few months, Twitter doesn't prove that these plans are helping, we could see downtrends turn into a long term issue.
What Do You Think?
Where do you think Twitter stock is headed and why? Let us know in the comments below!