Twitter: hoist by its own petard
The above tweet cost a certain company $7.4 billion, around 18 percent of its value. And the name of the company? You guessed: Twitter.
Yesterday, April 28, shortly before officially announcing its first quarter results for 2015, a problem that Twitter blames on the NYSE, led to the publication of figures showing a slight fall in turnover compared to initial estimates ($436 million compared to $456 billion). In reality, the earnings estimate fall was compensated by an increase in the number of online users and higher share earnings ($0.7, compared to $0.4), which in large part mitigated the poorer-than-expected results. If things had gone as planned, and the tweet sent out after the announcement, it might have prompted a slight fall in the share value, but surely not the catastrophe that took place.
Instead, analysts Selerity spotted the numbers and beat Twitter to the tweet. The outcome of a message that provided no background information was an immediate and sharp fall in the value of Twitter’s shares, such that the NYSE put a halt on trading in the company while it investigated what was presumed to be a leak, but wasn’t. A worst-case scenario just kept getting worse. The only comparable scenario happened in February 2014, when the company announced a feeble growth in its user base — just 3.8 percent from the previous quarter — and saw the price of its shares tumble a terrific 24 percent. Twitter’s overall evolution since its IPO in November 2013 is, at its best, sad.
The glorious paradox here of course is that Twitter is the means by which news moves fastest in today’s world. A simple tweet is able to spark a financial disaster, such as the 2013 hacking incident that sent the markets crashing, or it can ruin somebody’s career when they tweet under the influence. In this case, the tweet was about the very company that is making it possible to send the message in the first place, and what’s more a message with no context and no background: just a bald statement.
I’m not an investor, and neither am an expert in financial analysis, but I have no doubts about the future of Twitter: this is a company that is growing despite having a product with a wide audience and one whose value proposition many people fail to see, but it seems to be developing its marketing tools for advertisers adequately, bearing in mind how difficult it is to balance a good customer experience with the needs of advertisers, and the company is increasingly well-positioned in the video and live streaming sector.
At the same time, a scenario where its only competition was traditional media, or at worst Google and Facebook, has now become one where players like Instagram or Snapchat are present, and doing well, fighting for their share of a market where users don’t so much “put up” with advertising, as enjoy it. This is a scenario that is still hard to assess if you live outside the United States, but one that has a great future that will in large part be defined by the habits of younger people.
Twitter isn’t going to have an easy time of it in the coming years, although it is widely believed that there is a divine justice or karma that rewards companies that generate high value for their users, and Twitter has certainly done that: millions of people use it around the world. But nothing in this life is guaranteed. And right now, we have a situation where rather than pondering what the future worth of the company might be, we instead can only stand by and watch as the very instrument that it created now explodes in its face, and in a couple of minutes, using less than 40 characters, eliminates almost a fifth of the company’s value: hoist by its own petard indeed.
(En español, aquí)
