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The social media giant has failed to live up to the expectations of many investors who saw the firm as being the next tech success story in the financial markets. However, with 316 million active monthly users, the crucial question is whether the firm can monetise its strong loyal customer base in the way Facebook did.
Facebook too found itself sold heavily following a bumper 2012 IPO. That said, the 432% rise from the 2012 low has a lot to do with how it has turned loyal customers into profits; something Twitter has tried and failed to do over the past year.
The monetisation of Twitter’s user base will be notably more difficult owing to the slim line and minimalist design of the Twitter product. So difficult that, ultimately, it saw former CEO Dick Costolo step down on July 1. Despite a lengthy search for a successor, the firm has looked within, instead choosing to appoint interim-CEO and co-founder of Twitter, Jack Dorsey. Stock markets certainly seemed to like it, with shares rising over 7% yesterday off the news.
Part of this initial optimism from shareholders is owing to the speculation that Dorsey has a whole host of plans to spread the product further. An advertising campaign to attract more novice users, along with a curation feature utilised around live events named "Project Lightning" are two of the main plans under his initial leadership. The problem is that to shareholders, the issue is profitability from current users, not a lack of users.
On Monday’s conference call, board member Peter Currie cited Dorsey’s ‘product innovation’, ‘execution cadence’, and leadership ability as the main reasons behind his appointment. Expressing that he has exceeded expectations across a number of areas.
Despite this initial optimism, there are still clear reasons to worry the firm may continue in the wrong direction and fail to create the shareholder value markets are looking for. Dorsey’s appointment means there will be a lack of fresh ideas that a new leader would bring, especially given he has been part of the firm since its inception, as CEO, chairman of the board, and executive chairman.
Dorsey is also a CEO and founder of the payments processing firm, Square Inc. This split responsibility between Twitter and Square Inc will no doubt mean his time is not solely attributed to either roles.
Dorsey’s appointment to me is therefore not something to be celebrating, despite initial market sentiment. His lack of full time dedication to the role, along with his non-financial focus makes it unlikely the firm will begin to return significant shareholder value for the time being.
Viewing Twitter from a technical outlook, it is clear it remains some way from a real turnaround. The breaks below $34.64 and $29.51 were particularly negative for the share price and while price remains below $29.51, it seems likely further downside could be impending. A confluence of trendline resistance, the 18 September high and the 50-day simple moving average provide the backdrop of a bearish view which could see much of yesterday’s gains reversed. Thus, I am bearish going forward, especially with price below $29.51. A break above $29.51 would bring this into question.
However, two things are worth bearing in mind. I have been bullish in the past and will be in the future, given the large loyal user base. I do expect to see the firm succeed in the long-term, yet I see Dorsey’s appointment as slowing that transition. Secondly, do not underestimate the power of optimism and should the market really see this as a good move, we could see some strength now the leadership race has been resolved. A move above $29.51 would signal that we could see a spike up towards $34.64.