Twitter Falls 26% Post Q1, More Pain for Investors Ahead? - Analyst Blog

The last couple of days have been nothing short of a nightmare for Twitter, Inc.TWTR . On Wednesday, Twitter's earnings were leaked before markets closed and shares slid over 18% in a short span of 40 minutes. That's not all. In yesterday's trading session, shares of this micro-blogging site fell another 9% to close at $38.49. The company's shares have tanked about 25.5% since the company announced its first quarter 2015 results.

Though the company's loss per share was lower than expected (yes, the company is still not profitable), its inability to meet its revenue guidance was disappointing. Investors are slowly losing faith in the company. Slowdown in user engagement is also adding to its woes as advertisements are its primary source of revenues.

In the quarter, ad click rates, ad load and app install ads were also sluggish, which weighed on its sales. To top it all, the company also lowered its outlook for the second quarter of 2015 and for the full year.

Of late, Twitter has been struggling to drive growth in its user base. In this quarter, the company had 324 million users, a modest increase from last quarters' figure of 288 million. Furthermore, Twitter lost some popular users in the past few months (including Zelda Williams, daughter of Robin Williams). Furthermore, some other users have shifted to other platforms like SnapChat, Vine, Pinterest, WeChat, Google+ and mostly to Facebook FB .

On the other hand, Facebook, Twitter's strongest competitor, has witnessed an increase in its user base driven by strong growth across mobile and international users. Additionally, the company has been focused on revamping its other platforms like Messenger, Instagram and WhatsApp. In fact, Facebook has seen significant improvements in its user base in the past few quarters, which has helped it to attract more ad dollars for the company.

Earlier this month, there were also rumors that Google GOOG was considering an acquisition of Twitter. However, in the absence of any official notification, the news fizzled out.

We believe that Twitter's weak research and development team, slow product development, increasing competition and the inability to meet guidance has made investors nervous.

Nonetheless, mobile and international can become vital growth drivers for Twitter in the long run. Additionally, accretive acquisitions and its foray into e-commerce are other positives. The company has also taken initiatives like introducing new features that make the platform more visually engaging. However, the company will need to strengthen its product portfolio to reach a sustainable growth position in the long run.

Twitter has a Zacks Rank #2 (Buy). Another stock that can be considered is DTS Inc. DTSI , sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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