Twitter (NYSE:TWTR) is one of the most successful social networking websites in the world. Since its creation in March 21st 2006, this micro blogging website has grown from fourteen accounts to over five hundred million accounts in 2012. The success of Twitter is also evident through its frequent use. For example, Twitter users tweeted more than three hundred and forty tweets per day in 2012.
Moreover, this San Francisco based company handled more than one and a half billion queries on its website each day last year. These statistics place Twitter among the ten most visited websites in the world. In fact, many analysts refer to Twitter as the short messaging service of the internet. Unfortunately, Twitter’s success in terms of usage may not necessarily reflect its success in terms of revenue. Here is a comprehensive analysis of Twitter’s revenue for the past decade.
An Analysis of Twitter’s Revenue
Twitter is not a profitable company. In fact, the company has failed to make any profit for the last three years. For example, leaked documents in July 2009 showed Twitter had projected revenue of four hundred thousand dollars in its third quarter for that year. This is meager revenue for such a large company especially when the company is in its third year of operations. It is also important to note the fact that Twitter only generated revenue of about forty five million in 2010. The company operated at a loss for that same year after paying up its expenses.
Twitter will release its financial results in February this year. Market analysts are expecting revenue of about one billion dollars but even this kind of revenue will not pull the social networking giant into the zone of profitability. The lack of profitability notwithstanding, Twitter is valued at more than thirty one billion dollars.
How Twitter Works In Terms Of Business
Many people understand how Twitter works in terms of content sharing but only few understand it from the business perspective. In other words, many people do not know how Twitter actually makes money. Here is how it does it.
To being with, Twitter providers its users with a free micro blogging service. These users become a potential audience for advertisements. Companies then pay Twitter to place advertisements on the social networking website. Twitter will place these advertisements on its website strategically by using the profile of its users to targeting specific users with specific advertisements. This allows the companies that pay up for advertisement to reach their intended market niche.
Unfortunately, this business model has not been working well for Twitter as is. This is why market analysts are skeptical about Twitter’s future and therefore, they are downgrading Twitter’s stock. Here is a more comprehensive overview of why these market analysts are so skeptical about Twitter’s stock.
Why Are Analysts Downgrading Twitter Inc?
To begin with, Twitter’s revenue is not impressive. Investors cannot expect huge returns on their investment at the current rate of revenue growth in Twitter. More specifically, industry analysts do not expect Twitter to make any profit until 2015. This kind of short-term unprofitability would make any investor anxious to buy Twitter stocks because many things can change between now and 2015. This is especially true with respect to the intense competition Twitter is facing from other social networking websites such as Facebook and Google Plus.
In addition, a survey conducted by Cowen and Company reveals that many advertisers were not happy with the advertising platform Twitter is offering. In fact, many of these advertisers preferred other social media platforms as opposed to Twitter when it comes to advertising. This survey could be a pointer towards a possible shift by advertisers from Twitter to other social networking websites where they feel there is better value for their money.
Finally, another survey by Peer Analytics revealed that Twitter provides no real content for its users and advertisers. Part of these revelations showed that forty percent of all chatter on Twitter what pointless babble, four percent spam and six percent was self-promotional. This means that Twitter could lose its share of social media users if other websites provide more meaningful content for them than Twitter currently does.
These are valid reasons as to why analysts are downgrading Twitter Inc. However, neither the fall nor the rise of Twitter’s stock is certain. Only time will tell if these market analysts are right or wrong in regards to Twitter Inc.