Twitter Will Suffer Until it Shows More User Growth

Stock Market

If Twitter (NYSE:TWTR) is going to improve in 2022, it will have to find new ways to attract users. But how it will manage to do that is still up in the air. And that’s why TWTR stock is bleeding these days.

Twitter Inc (TWTR) earnings were a mirage

Twitter currently trades at $35.10, down more than 18% since the beginning of the year. But this isn’t a new trend. Twitter is down a whopping 48% over the last six months and lost 21% in the last 12 months.

Surely it needs a jolt. But its most successful leader, co-founder Jack Dorsey, is already out the door.

Twitter Without Dorsey

In November, Twitter’s chief executive officer (CEO) shocked shareholders and the Twitterverse by announcing that he was stepping down immediately as chief executive. The move allows him to focus on his other company, the payment processing platform that changed its name from Square to Block (NYSE:SQ).

I’m already on the record as saying Dorsey’s move should pay off for Block. But I’m less certain about what it will mean for Twitter, which is now being led by Parag Agrawal. He moved from chief technology officer to the CEO job as Dorsey stepped down.

After all, Dorsey was CEO of Twitter from the time the company started in 2006 until he was forced out of the job in 2008. Then in 2015, with the company foundering, Dorsey came back to replace Dick Costolo.

Under Dorsey’s leadership, Twitter stock gained 85% after he returned as CEO until the date he stepped down. He did a lot to right the ship. And he left Agrawal with some big shoes to fill.

Recent Performance for TWTR Stock

Obviously, you can’t blame Agrawal for Twitter’s weakness in the last couple of months. Other tech names – including Dorsey’s Block – are down, as well. It is a bear market for many tech names.

Third-quarter results – the last quarter under Dorsey’s leadership – showed the challenges that TWTR faces. While revenue was up 37% from the previous year to $1.28 billion, the company posted a net loss of $537 million, or a loss of 67 cents per share. That’s compared to a gain of $29 million and 4 cents per share in the same quarter a year ago.

Much of the loss was attributed to an $800 million settlement that was reached in September. The lawsuit settled claims that Twitter provided misleading engagement numbers to investors.

Twitter also drew concern about the number of daily active users. Twitter said the 211 million daily users was up 13% from a year ago. But the number was also flat when compared to the second quarter. Twitter needs to do better than that.

The Trump Factor

Love him or hate him – and there are plenty of people on both sides – former President Donald Trump drew a lot of eyeballs to Twitter. The former president loved to vent, praise, attack or announce policy on the social media platform. There are myriad media accounts describing how the former president loved to send out a tweet and then watch the reaction from cable news and his Twitter followers.

In 2017, an analyst estimated that Trump and the engagement he generated on Twitter was worth up to $2 billion of the company’s market capitalization. So, it was a bold stroke when Twitter permanently banned Trump from Twitter in the wake of the Jan. 6, 2021 insurrection at the Capitol.

I’m not saying that Twitter stock is falling short because Trump isn’t on the platform any longer. Tech stocks are down across the board, and that has nothing to do with Trump. But at the same time, I’m sure that Twitter’s C-suite would love to have $2 billion more in market cap that someone like Trump could bring.

And then there’s the specter of competition. Trump Media & Technology Group purportedly plans to launch an alternative social media platform to be called Truth Social. The company has also announced plans to merge in a blank-check deal with Digital World Acquisition (NASDAQ:DWAC).

The Bottom Line on TWTR Stock

Personally, I like that Twitter is making changes to its platform. It is perfectly within its right to ban or suspend users like Trump and U.S. Rep. Marjorie Taylor Greene who repeatedly violate Twitter rules. And I also support more recent changes, such as Twitter’s announcement that it won’t allow users to share private photos or videos of someone without their permission.

Efforts to clean up the platform and make it a more civilized place will give Twitter a better user experience and make it a better platform in the long run.

But for now, Twitter needs to find a way to better monetize its users and increase daily active users. Until it does, TWTR stock will likely continue to suffer.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at@1patricksanders.

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