Here's Why Twitter, Inc. Fell 30% in 2016

The social media network may be making headlines, but it still hasn't figured out how to turn a sustainable profit. Is this huge price drop a buy-in opportunity or just a big, red flag?

Anders Bylund
Anders Bylund
Jan 5, 2017 at 8:08AM
Consumer Goods

Image source: Twitter.

What happened

Shares of Twitter (NYSE:TWTR) fell 29.5% in 2016, according to data from S&P Global Market Intelligence. Long story short, the social media expert is falling apart in front of our very eyes.

So what

In the words of analyst firm Stifel Nicolaus, published in early 2016, Twitter came into that new year with a lot of fundamental problems to tackle. "Twitter is a product that has never fully developed into a sustainable public company due to either poor strategy, poor execution, or that it was never destined to be one," said Stifel's Twitter analyst.

At the time, user growth was stalling, and Twitter still didn't know how to make money in a sustainable way. Top executives had started to leave the company, and more followed in the next three quarters. At this point, six of Twitter's 10 most senior leaders as of the end of 2015 have left for greener pastures.

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Now what

Twitter has tried and failed to find a buyer for the whole company. Having co-founder Jack Dorsey back in the CEO saddle has not brought any dramatic changes to the business, not unveiled any clear vision of how to untangle Twitter's many problems. The service is trying its hand at streaming live video, but that idea is bringing in the wrong type of users -- Twitter needs an engaged user base that's willing to hang around and click on ads every day, not just for a couple of hours on game day.

Honestly, I don't see a way out of Twitter's profit-generating conundrum. Even after a 30% drop in 2016 and a 62% discount from the IPO price three years ago, the stock still has a long way to fall. The whole $12.2 billion market cap is still at risk, in my view.