The Paradox of Twitter's Value in the Trump Era

January 24, 2017
By: Doug Mohney

Once upon a time – the end of 2013, to be precise – Twitter (News - Alert) was valued at nearly $40 billion.  Today, it's “only” at $11.68 billion, with a majority of analysts rating the stock at a hold. Rumors of acquisitions abound, while the company is selling off software assets and pushing live video as its Next Big Thing.  But how do you assess Twitter's value when it is the bully pulpit for the 45th President of the United States?  It's an awkward conversation.

Twitter's next earnings date is coming up on February 9 (In the middle of ITEXPO, if you haven't marked your calendar).  Since going public in the fall of 2013, the company has posted annual negative losses on the order of over $500 million per year.  Sooner or later, the company has to make a profit from its 313 million or so monthly active users, but it isn't clear how Twitter can move beyond (somewhat scattershot) insert ads  and promoted accounts into more targeted and effective revenue streams.  Facebook and Google (News - Alert) do an almost stalker-like job of targeted ads based upon search terms and websites visited, but Twitter hasn't found a sweet spot yet.

Live sports streaming and highlight shows have been trumped as the next big thing for bringing the company to profitability, providing real time event coverage and unique shows  for the social media outlet to its users – a page from the Netflix model.  But will golf, hockey and baseball fans that haven't already self-selected for online and pay-TV PGA, MLB (News - Alert) and NHL games offerings go to Twitter for a fix? It's a stretch in my mind.

The real power and “value” of Twitter comes from its political and social relevance at this point in history.  As a presidential candidate, Donald Trump embraced the service as one of his key ways of bypassing traditional media.  Since winning the 2016 election, Trump has used the service to castigate Boeing and Lockheed Martin for the price of airplanes, scolded automakers for building cars in Mexico rather than the U.S. and has threatened to name and shame Congresspeople who stand in the way of legislation he supports. 

Public companies called out on Twitter have watched their stocks plummet, leading high-frequency automated traders to scan Trump's remarks and immediately buy or sell on affected stocks, reports the Los Angeles Times.  Affected businesses scrambled to respond to tweets, issuing corrections followed by public meetings with the President-elect/President. 

Twitter is certainly “punching above its weight” as the Brits say, through its impact on stocks, politics, and businesses.  However, impact is not profitability.  Live streaming sports events sounds like the less-than-successful business model of the cellular industry trying to shoehorn in a large screen experience on a smartphone.

Even if Twitter finds a buyer in the near term, it will still need to be profitable. Losing around half a billion dollars a year is a luxury few businesses can afford over the long run.

Will Twitter be forced to become a subscription service? Certainly, a for-pay model runs against the grain of social media and the general freemium principles that have built Internet businesses over the past two decades. However, paid subscription could reduce bots and trolls that feed and propagate “fake news” into the service.  If Twitter managed to collect a dollar per subscriber, at 330 million active users – without bots, trolls and anyone who doesn't want to pay – it should be able to come up with a steady revenue stream to supplement its continued ad revenues.

Worst case for Twitter is it dies.  This is not an impossibility. Numerous social media alternatives, such as Facebook and Instagram, exist, while many once-powerful services such as AOL (News - Alert) and Yahoo have faded.  But death for Twitter may be closer than anyone thinks if the company doesn't start generating cash to pay the bills.

Only time will tell Twitter’s fate. However, if you’re interested in taking a closer look at technology’s fate under the Trump administration, stop by the “Tech Under Trump” session at ITEXPO. ITEXPO (News - Alert) is being held in Fort Lauderdale, FL, from Feb. 8-10, and the session will take place Feb. 10 at 11 a.m. See you there!




Edited by Alicia Young