6 Mar

Twitter: Why Cost-Cutting Is Particularly Complicated


Stock performance has been underwhelmed

Twitter stock (TWTR) has recorded underwhelming performance in recent quarters. As of February 28, the stock was down more than 11% compared to where it was 12 months ago. In contrast, Facebook (FB) stock was up more than 27% compared to 12 months ago.

Twitter: Why Cost-Cutting Is Particularly Complicated

The chart above shows Twitter’s US monthly active subscribers.

Feeble growth metrics

Twitter’s weak stock performance is related to its feeble revenue and subscriber growth metrics compared to rivals such as Facebook. The company reported subscriber growth of 4.6% in 4Q16 while revenue only rose 1%. Furthermore, the average revenue the company extracts from each of its users fell last quarter. Twitter reported US (SPY) average revenue per user (or ARPU) of $5.70, down from $6.31 a year earlier. Yet Facebook’s US and Canada ARPU expanded to $19.28 from $13.06.

Cost-pruning may not move the needle for Twitter

If Twitter can’t grow its top-line rapidly, can it bet on cost-cutting to turn its fortunes around? While company managers have always turned to cost-cutting when it’s tough to grow revenue, for Twitter, the picture looks complicated. The company has had top-line growth problems for a long time, and investors may not be fully sold on the idea that cost-pruning could help the company turn around.

Moreover, aggressive cost-cutting could limit Twitter’s ability to innovate, yet it needs new products and features to boost user engagement on its platform to fend off competition from Facebook, Alphabet’s (GOOGL) Google, Microsoft (MSFT), Yelp (YELP), and Snap (SNAP).

Latest articles

Apple (AAPL) stock is up almost 68% year-to-date. AAPL has returned 50% in the trailing 12 months and 125% in the last five years.

While the media caters to Millennial preferences, there’s one economic sector that’s shifting to a more seasoned crowd: healthcare stocks.

Despite solid earnings growth this year, Energy Transfer stock fell close to its multiyear lows recently. Could this weakness be seen as an opportunity?

Last week, Duquesne Family Office, managed by Stanley Druckenmiller, filed its Q3 13F with the SEC. We'll look at the fund's top holdings, buys, and sells.

Investors have waited for a peek at Tesla's electric pickup truck. Elon Musk hinted that it has the Porsche 911's performance and the F-150's functionality.

AT&T plans to launch HBO Max in May 2020. At $14.99 per month, this subscription video service could garner about 50 million subscribers over five years.