Twitter (NYSE:TWTR)stock is getting killed this year. Growing concern over slowing user growth at the social media company has helped push its stock price down more than 37% year-to-date. Over the past 52 weeks the stock has ranged from $29.51 to $74.73, according to S&P Capital IQ data.
Yet, despite 2014's big year-to-date decline Twitter's stock is still more expensive than social rival Facebook (NASDAQ:FB) in regards to its price-to-sales ratio. That's not a good sign for Twitter shareholders, particularly because Facebook's stock is up more than 34% year-to-date. The question on many investors' minds now is how Twitter plans to turn things around. Below, three Motley Fool contributors share their takes on what is most important for Twitter's future.
Joe Tenebruso: The one thing that is most important to Twitter's future is just how large its audience can ultimately become. It is upon this key metric that all else rests; if your investment thesis for Twitter is based upon it becoming the go-to source for global news and real-time conversation, then you'll likely want to focus on user growth to ascertain whether it's trending at levels that can support such a claim. It's also important to understand that the value that marketers place on -- and the amount of money they allocate toward -- Twitter's network will ultimately depend on the size of its audience.
Fortunately, Twitter's long-term user growth has been impressive, with monthly active users, or MAUs, surging from 68 million in March 2011 to 241 million at the end of 2013.
However, Twitter's stock has come under pressure recently as user growth trends have moderated, with MAUs rising 23% year over year to 284 million in the third quarter and only 5% sequentially from the second quarter. To their credit, Twitter's management team is well aware of the importance of driving strong user growth in the years ahead. They recently outlined several strategies during an analyst day presentation that they believe will accelerate user growth, engagement, and ultimately, monetization of Twitter's platform.
During the presentation, Twitter's management reiterated an important point, namely that Twitter's reach extends far beyond its registered users. Previously, the company mentioned that "there are hundreds of millions of additional unique visitors who come to Twitter every month but don't log in." We now have a more specific figure, with CEO Dick Costolo placing the number of these non-logged in visitors at 500 million. Costolo and his team also highlighted new features specifically aimed at these visitors. These new initiatives will be a key determinant of Twitter's future success -- and its shareholders profits -- because if Twitter can convince advertisers to pay to reach this wider audience, investors might be drastically underestimating Twitter's future earnings power.
Tamara Walsh: How Twitter monetizes its users in markets abroad will be key to the social media giant's future. It has been more than a year since Twitter's initial public offering. During that time, the company has done a great job of ramping up its advertising business. In its latest quarter, for example, Twitter generated $320 million in ad revenue. For those keeping score at home that's an increase of 109% from the third quarter a year ago.
However, Twitter currently falls short in regards to monetizing its international user base. More than 78% of Twitter's users are located abroad, yet only about a quarter of the company's revenue currently comes from international markets. This creates a massive opportunity for the company going forward.
Fortunately for shareholders, Twitter is already in the early stages of building out its international business. The company recently expanded its Twitter Ads to 12 additional markets throughout Europe. Management also recently launched Twitter's self-service ad products for small and medium-sized businesses in 12 new countries. This is clearly an important growth strategy for the company and one that holds tremendous promise for Twitter's future.
Alex Planes: Tamara and Joe have already covered Twitter's one-two punch for growth. However, Twitter has a major problem that doesn't appear to afflict rival social network Facebook to the same extent -- huge numbers of Twitter accounts are dormant or simply not manned by real people.
When Twitter went public last year, it estimated that roughly 5% of its MAUs were fake. This is roughly in line with the percentage of Facebook's users the larger social network estimated were fakes in its 2012 IPO. However, this figure falls below independent research released around the same time estimating that one in 10 Twitter accounts is fake.
Why should this be a larger problem for Twitter than it is for Facebook? Both services have their share of fake accounts, but the active users on Facebook are far more active than those on Twitter. There are nearly a billion Twitter accounts, and yet there were only 284 million MAUs -- less than a third of all Twitter accounts -- in the third quarter.
Twitter's "active" users have been significantly less active on the service than Facebook's users. The highest estimate of Twitter use I could find was 170 minutes per month (that's less than six minutes per day) for active users, which trails far, far behind the average of 40 minutes per day that the average American user now spends on Facebook. An older analysis showed that Facebook's users spent an average of nearly 15 minutes per day on the service, compared to roughly four minutes per day for Twitter's users.
If Twitter's real users were more active, it might not matter so much that so many of its accounts are fake. If Twitter could eliminate more of these fake accounts, it and its investors might have a more accurate understanding of how well it's monetizing its user base. Improving engagement is probably the best way to overcome the faker problem, but more stringent controls over its accounts would at least be a step in the right direction.
Alex Planes has no position in any stocks mentioned. Joe Tenebruso has no position in any stocks mentioned. Tamara Rutter owns shares of Twitter. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.