On one hand, you have a company with stagnant user base growth, a sliding stock price, and an uncertain strategy for its future. On the other hand, that same company still boasts over 300 million active users, double-digit revenue growth, and an incredibly strong brand.
That is the ongoing story of Twitter (TWTR) as shareholders weigh buyout rumors that have surfaced in the past week. Is this a company that just needs a little more time to regain its footing, or does a sale present the best exit option for investors?
On this episode of Industry Focus: Technology, Motley Fool analysts Dylan Lewis and David Kretzmann ponder these questions and discuss the recent debut of Twitter's first live stream of an NFL game.
A full transcript follows the video.
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This podcast was recorded on Sept. 23, 2016.
Dylan Lewis: From the perspective of Twitter shareholders, how are you feeling about this?
David Kretzmann: I don't know. I'm a Twitter shareholder, they're definitely disenfranchised over the past couple years. As a lot of people are, Twitter has been a disappointing performer. It's still priced below where it was when it went public. This is a company that's had a lot of struggles. Sales have been decelerating at Twitter since the second quarter of 2014. So, for about two years now, every quarter, sales have decelerated. The most recent quarter, sales were up 20%. For the upcoming quarter, they're guiding for sales growth between 3.5% to 7%, even with co-founder Jack Dorsey returning as CEO last October, Twitter is having a hard time figuring out its vision and grasping a market in a profitable way. The company is still struggling to generate a profit. You have sales decelerating, and such extravagant stock-based compensation, as we've talked about in previous episode. It's kind of the perfect storm of trends going against Twitter right now as a business.
The company has been trying to reinvigorate growth primarily by focusing on live-streaming video on its platform. Last week, we had the first live stream of an NFL game.
Lewis: Did you check that out?
Kretzmann: I didn't, did you?
Lewis: Yeah, it was actually pretty cool. It was a nice little interface. I've seen from some people that it was easier to navigate that than some of their own cable packages, which is a testament to how well they've streamlined that for the user experience.
Kretzmann: Yeah, I've heard good things about it. They're basically releasing a Twitter live-streaming video app on different platforms. Even if you're not a Twitter user with an account, you can still watch these events live. They did some live stuff with the Olympics as well. They're planning to live stream the presidential and vice presidential debates here in the U.S. coming up. But even that first launch of the NFL game last week, on average, there were 243,000 viewers watching the game on Twitter. That compares to 15.4 million who watched on CBS or the NFL Network. So, that's a good start, but it's not really clear if that's going to spur growth quickly, at the rate that Twitter needs.
Lewis: Because those people are watching for free, they don't need a cable package; they don't need a TV. It's very easy for them to just tune in and watch the game if it's something they want to do.
Kretzmann: Yeah. That's certainly to be expected. Online video is really still the wild west right now. A lot of companies are trying to figure this out. You have Facebook really ramping up their live video efforts, YouTube is doing a lot in that space. Twitter is trying to grab a piece of that. So, there's a lot of competition. The boundaries are still being defined in the market.
Twitter obviously has a powerful platform. Its user base has pretty much stalled out at about 315 million monthly active users. Still a powerful platform, but from a business perspective, the company has really had a hard time getting a whole lot of grasp. So I think the fact that the board at Twitter is interested in acquisition at this point, when [its] stock price is relatively depressed, and even below the IPO price. The fact that the board is interested in selling the company around these levels makes me wonder if they're not totally optimistic about Twitter as an independent company going forward.
Lewis: Yeah, and I think, for shareholders, you kind of have two different groups. You have people that maybe got in shortly after the IPO, or about a year ago, something like that, and bought in when it was a much more highly valued company. And then you have people that bought in maybe in the last four months at much lower levels, and were hoping for that turnaround story, or saw that they were relatively cheap compared to where they've been in the past, and maybe they'd be a buyout candidate. I think those two groups feel very differently about this proposal.
We saw a 20% spike today. There's probably some more upside there if an actual deal comes in. I'm guessing there would be a premium on top of that. But, I know Jason Moser, for example, wasn't particularly psyched about this deal, because in his mind, they're just starting to figure out their focus, looking at livestream and being more of a media company. A lot of the decisions and moves they've made have centered around that idea, and he wanted to see them have a little bit more runway, and see how it materializes in the coming quarters.