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Instant Analysis: Twitter's Not Changing Its Timeline

By Jamal Carnette, CFA – Feb 9, 2016 at 9:00AM

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When is no news actually news? When it concerns Twitter.

What Happened?
Apparently, nothing. A report from Buzzfeed stating Twitter (TWTR) was looking to change its timeline algorithms to de-emphasize the reverse chronological order it's famous for to one more akin to Facebook's (META 1.97%) curated timeline caused a brief stir. The hashtag #RIPTwitter started trending as angry users flooded the social-media site about prospective changes.

Soon after the initial report, Twitter's CEO Jack Dorsey calmed the controversy by denying the report in a tweet -- the second time in less than a month Dorsey had to correct media reports (more on this later).

Buzzfeed retitled its initial report and added an update without going into detail how it got the story wrong. For most companies, this would be considered a non-story, but even false reports matter (a little) to Twitter.

Does it matter?
The news flow continues to be unfavorable to Twitter. Over the last year investors have seen the company fire nearly 8% of its workforce and rapid turnover in its C-suite. In late January, the company lost four high-level executives in one weekend alone with Dorsey taking to Twitter to emphasize they left on their own accord. Investors have suffered over the last year as well, versus Facebook's gain of 33%, Twitter's shares are down nearly 70%.

Twitter's problems are twofold at this point. On one hand, the company is struggling to grow its monthly active users, or MAUs. Last quarter Twitter reported 11% year-over-year MAU growth by reporting 320 million users (including SMS Fast Followers). That pales in comparison to Facebook, which grew MAUs 14% over the last four quarters, but is nearly five-times larger. When comparing the actual numbers, Facebook added 198 million MAUs over the last year while Twitter grew 32 million MAUs over the last reported year.

The second issue is perhaps anecdotal and unfair, but the narrative that Twitter is operationally deficient has passed the development stage and starting to solidify among Wall Street. While it's unfair to blame an incorrect report on the company itself, Buzzfeed's report is simply another distraction to a company that can afford very few.

Obviously, since there's no change it would be hard to qualify this as actionable news, but it does give further credence to the greater zeitgeist that Twitter can't control the narrative. In the end, though, Twitter could turn the page by reporting a positive quarter on Wednesday. As such, investors should (mostly) classify this as market noise.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. 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.

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