Why Twitter investors need sturdy seat belts
Buying Twitter's (TWTR) stock seem more akin to a new thriller roller-coaster ride than a typical investment. Shares were down more than 8 percent on Thursday, while on Friday they closed up more than 6.6 percent, or $1.64, to $26.32. These two whipsawed days are a microcosm of shareholders' fears and hopes.
On the fear side, Wall Street worries about Twitter's future. As for many Internet-based businesses, the company's promise that investors perceive is growth, both massive and unending. Rising income is great, but it's the constant increase in the number of users investors crave on the assumption Twitter will find more ways to make money if enough people are attracted to its service.
However, Twitter hasn't maintained the constant progress in user growth seen by the likes of Facebook (FB), Snapchat and Uber. It's a signal that perhaps Twitter has a constrained future, and that's a problem for a company that depends on ever-bigger audiences to make its shares more valuable.
And unlike rival Facebook, Twitter has yet to show a profit. In 2013, it lost $647.2 million. Last year the net loss was $578.4 million -- better, but still raising the question of how big the company needs to get for its financials to move into the black.
CEOs are supposed to lead corporate strategy, but so far the corner office's effectiveness regarding direction has been questionable. The disappointing slowdown in user growth pushed Dick Costolo out as chief executive. Since then, co-founder and chairman Jack Dorsey has served as interim CEO, but rumors that he would become permanent leader have not been entirely welcome.
Twitter shares sold off this week on the news, probably for two reasons. One is obvious: Dorsey is also CEO of mobile-payments company Square, and it's reasonable to question whether he could pay the needed attention to move Twitter forward. He has been clear that, if given the nod, he wouldn't leave Square.
The other issue: As chairman of Twitter's board, Dorsey would have signed off on major strategic directions. It's unclear that he has new answers the company hasn't been already trying.
So, why has the stock been up on Friday? It likely comes down to investors grasping at good news. Word is that Twitter may provide a way to break out of its 140-character limit for messages, although brevity is what has distinguished it from other social networks.
Another hopeful point is a social e-commerce collaboration that would let users buy products directly from the service is moving ahead. Such purchases would give Twitter another revenue stream -- and perhaps a way to get into the black.
Still, the company remains in a sweaty spot. Twitter is still in need of a turnaround from investors' point of view, and it doesn't yet have a clear answer. So, the down and up of the stock could turn down again, should analysts and Wall Street decide that perhaps the good news so badly wanted still isn't in sight.