The only question to ask Twitter


It has been a terrible month for Twitter. TWTR is down about 8 percent during the past month. It closed around $40 a share on Friday, off about 25 percent from its all time high of around $74 a share. For the past one year the company executives have been hailed as a bunch of idiots, geniuses, savants, smart and clueless — depending on who is commenting, which analyst is sharing their opinion or which investment bank is issuing their guidance. Let’s not even talk about the media — there aren’t enough uppers, downers and alcohol in the world to explain the schizophrenic headlines.

Twitter announces a plan to attract app developers and the world thinks they are smart and have nailed it. No one bothers to ask whether developers even need another SDK and how much free SMS will cost the company as part of the new effort to woo developers. Or does this solve the one constant problem all developers have — finding growth and distribution, especially since Twitter itself has been struggling with — growth. Fast forward to last week and people are now questioning the leadership of Dick Costolo (who was hailed for leading a great IPO.) Jim Cramer, in his typical passive-aggressive manner is asking for Costolo’s head. Wall Street Journal did a nice hit job on Twitter’s chief — focusing more on him instead of devoting their time and attention to Twitter’s one and only challenge.

And complaining about vision while ignoring that this large-capitalization technology company is growing revenues more than 100% a year. This is particularly important, considering that Twitter has anarchic roots and it is building a business and trying to figure out its future. It is unfortunate that it has to do this as a member of public markets and under the scrutiny of those who don’t quite understand the company.

Walter Price, a portfolio manager of Allianz Global’s Technology Fund, is hypercritical of Dick and Twitter in general and acts as a mouthpiece for all his acolytes on Wall Street. He voices concern about turmoil and turnover in executive ranks. Of course, the same people were celebrating Costolo and his genius when Twitter’s public offering lined their pockets nicely. These people also loved the revenue growth and new advertising efforts. In October 2013, Price commented:

“I like Twitter and its management. It could be a successful offering. I am a big fan of companies that have earnings and who are getting a lot of downloads and new users. It is an important part of news today and is the best way to get breaking news. They are now figuring out how to monetise this. I do not think it will be giant but it will be a successful company.”

I wonder why the WSJ reporters forgot to ask Price about this change of heart? After all, from a financial standpoint — you know the same metric Price once liked this company for, Twitter did just fine during the Q3 2014. So why all the complaining? It is because like everyone else, Price — who apparently isn’t even on Twitter — didn’t ask the right question from the company when it went public. In fact it is the only question anyone who follows Twitter and social web with modicum of understanding of the medium would ask — where’s the beef, I mean — growth.

Focusing on Dick and executive turmoil is missing the point. They are sideshows to the biggest challenge — something that has plagued the company long before the hindsight geniuses of Wall Street showed up. The only question shareholders should have been asking from day one: hey, what about growth? After all, growth begets users and users begets growth. And thus come revenues.User growth has been a core challenge for the company. The challenge was spelled out in black and white for anyone to see in its S-1 filing. It is a challenge because the idea of Twitter morphs with time — the company has always taken its cue from its community for the product’s evolution.

On the eve of Twitter’s IPO in my piece (To Live & Die in Public, That’s Twitter) I wrote:

“The kids of today have other internet distractions and ways of spending their attention. Snapchat and Instagram have shown that visual is the medium of communication for generation mobile. Cracking the growth code, attracting younger audiences and evolving the product without alienating the current user base are pretty steep mountains to scale.”

You are starting to see that become a reality. Instagram has about 200 million monthly active users. Snapchat is rumored to have 100 million. Twitter has 285 million monthly actives. Together those two visual mediums bigger than Twitter, and will continue to get bigger. This is a reality that doesn’t change by changing chief executives or focusing on executive turmoil. In fact, investors should be happy with the appointment of Twitter veteran Kevin Weil as Twitter’s product chief — the man has constantly delivered on what has been asked of him, including a money generating ad-product.

Is Twitter perfect? No. Is its management perfect? Probably not. But by beating up on Twitter management and being schizophrenic about a company which grew sales by almost 100 percent in a year —Wall Street is reinforcing the belief that for tech companies going public is a risky business. It also reinforces the point that the so called guardians of Wall Street wealth have no idea how the post-PC tech industry works, how to value these companies, how to account for rapidity of change and most importantly — what are the right questions to ask!

A letter from Om

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