When I bought into Twitter (TWTR 22.24%) three years ago, my bullish thesis could've probably fit in a character count-restricted tweet. Social media was booming. Celebrities were hopping on Twitter. The network effect was working.
When I sold my Twitter shares -- this past Thursday -- it was complicated. It wouldn't be fair to boil my selling thesis down to a handful of words. Let me take a handful of paragraphs instead to spell out why I've moved on from what was otherwise a winning investment for me after rising 135% in my portfolio.
1. Things don't "ad" up
Twitter's popularity continues to grow. It had 186 million monetizable daily active users at the end of June, a whopping 34% surge over the past year. Revenue growth hasn't been as kind. Ad sales actually declined 23% in its latest quarter.
There are plenty of good reasons for revenue and traffic to be passing ships. COVID-19 has slowed marketing campaigns -- even though Twitter lost digital advertising share to better-performing social media platforms for the period. Marketers are also bracing for a recession, and what that means for the value of a potential lead when money's tight. Twitter's usage is growing, but it's coming at a time when it's harder to cash in on the surge.
2. The beats stopped coming
Twitter's bottom line is something that doesn't get much attention, and deservedly so. Twitter's profitable enough to stick around, so it's the top-line gains, engagement metrics, and user growth that are the real drivers here. However, I can't help but notice that the company's gotten a bit sloppy at the bottom of its income statement lately.
The last time I wrote about Twitter was last summer, when the stock was hitting what was -- at the time -- another 52-week high. It had trounced analyst profit targets in each of the past four quarters. Here we are a year later, and Twitter has missed Wall Street's earnings estimates in three of the past four quarterly reports.
3. Twitter may never be the same
Social media is as popular as ever, but between the misinformation, chaos-fomenting bots, and account hacking, it's not as if Twitter is better than it has ever been. You may feel you have to engage in social media these days, but you don't have to like it, apparently.
This was supposed to be a seasonally potent time for the monetization of online platforms with the election around the corner, but there's a growing stigma to leaning on social media to influence voting -- or buying -- behavior. We're seeing many major brands swearing off digital advertising at the moment given the social unrest and the negative demeanor you're seeing on Twitter and rival social outposts. Between COVID-19 and the global recession, it's not as if advertisers are anxious to pay up for leads in the new normal.
It's not all doom and gloom for Twitter, of course. Things can get better on most if not all fronts. CEO Jack Dorsey's comments last week that Twitter is considering premium subscriptions are intriguing. The big uptick in usage offers hope for Twitter getting things right before its largest audience ever goes elsewhere. However, until the dark clouds clear, I'll sit things out.