Twitter (NYSE: TWTR) stock closed with a 24.56% plunge on Feb. 6, the day after it released earnings. Even though Twitter earnings beat Wall Street estimates, there were two troubling numbers that triggered last week's TWTR stock sell-off.
The first was the company's "timeline views." Timeline views are a measure of user engagement. They measure how many times a Twitter user refreshes a page.
Twitter has said that ad revenue per timeline view is one of the "key metrics" it uses to appraise the health of its business. It tracks Twitter's capacity to make money from that particular engagement.
Feb. 5's Q4 earnings showed that timeline views fell 7% since the previous quarter to $148 billion. On a year-to-year basis, views were up 26%, but the pace substantially declined since Q3's 50%.
The other number haunting Twitter right now is slowing user growth.
The company added 9 million users in the fourth quarter. That puts TWTR's growth rate at 4% over the quarter - another notch in growth deceleration. TWTR saw highs of 10% in Q1 2013, then 7% in the Q2, and 6% in Q3.
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Slow user growth greatly affects revenue collection on the ad segment - fewer users equals fewer ad clicks. And right now, Twitter has roughly one-fifth as many active users as rival Facebook (Nasdaq: FB).
Now the overhyped social media sweetheart thinks it can improve earnings problems with a face lift - and some of the changes look a lot like competitors Facebook and Google (Nasdaq: GOOG).
But here's why that won't work.
Twitter's New Look Won't Matter
Twitter attributed the bad numbers, at least in part, to a steep learning curve for the service - Chief Executive Officer Dick Costolo admitted after earnings that Twitter needs to become easier for new users to grasp. For instance, new users have to learn Twitter-specific vocabulary: how to follow a friend, how tweets differ from replies differ from direct messages, how to use hashtags, etc.
So Twitter is testing new features and designs with small, random pools of users right now to combat that problem, according to Mashable.
And the tweaks look an awful lot like Facebook and Google+ elements.
The profile picture and bio are shifted to the top left like competitors, instead of Twitter's middle center standard. The profile pic will also take up more space like those on competitor sites.
Twitter's tweet stream is also getting a new look - it will no longer be strictly vertical, for instance.
Tweets will be shown in a larger font size, and media tweets that include photos or videos will filter into a separate category.
Costolo also wants to enable the discovery of content based on topics and add more conversational features.
But these changes fail to fix these real issues with Twitter and its stock...
What Investors Must Know About Twitter (TWTR)
Making design changes isn't going to be enough of an impact to save Twitter.
The new layout and features may help stave off some decelerating user growth, but Twitter's got a long way to go to capture the customer base it needs to support the advertising that would propel its stock.
As it stands, Twitter's 240 million active user base is being completely overshadowed by Facebook's 1.23 billion monthly users. Changes to font sizes and the location of profile pictures aren't going to bridge that gap.
In an appearance on FOX Business' "Varney & Co." Dec. 30, Money Morning Chief Investment Strategist Keith Fitz-Gerald said he thinks Twitter's stock price is overvalued.
"Customers are leaving in droves, you've got a complex thing they can't monetize, and the next best thing is a click away," Fitz-Gerald said.
A disciplined trader may see some quick profits from Twitter stock, but Fitz-Gerald recommends investors stay away - there is no long-term potential here.
Besides, there are much better places to put your money to take advantage of the profits that the boom/bust crowd is leaving behind...
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