There was a time when Twitter strove not to end up like Facebook.
As the social media phenomenon prepared to debut in November last year, the last thing it wanted was a repeat of its larger rival's rocky IPO and subsequent sell-off. Now, the one-time Wall Street darling's inability to replicate its bigger cousin's success in mobile and online may be what holds it back.
Wall Street remains divided over Twitter as the seven-year-old company prepares to unveil only its second set of quarterly numbers on Tuesday, US time. Eleven of 31 investment analysts polled by Thomson Reuters have rated it a ‘sell’, significantly outnumbering the seven who deem it a ‘buy’. The rest have a hold rating, or its equivalent.
That's a stark contrast with Facebook and Google, neither of which has a single sell rating to their name. A strong quarterly showing from Facebook last week reflected an amped-up online and mobile advertising market that's likely to have given Twitter a boost.
Yet longer term, investors remain divided over whether Twitter can ever be as mainstream as Facebook.
"When Facebook was Twitter's size, Facebook had a 35 per cent operating margin. Twitter's is negative 10," said Hudson Square's Daniel Ernst, who has a sell rating on Twitter. "It's an inefficiently structured operation addressing a narrow audience."
Twitter Chief Executive Dick Costolo, the architect of the company’s then-fledgling monetisation efforts two years ago, appears to have acknowledged this longstanding criticism, implementing a number of recent moves to try and bring the service into the mainstream.
He's introduced Facebook-like user profiles, given photos more prominent placement in tweet-timelines and allowed people to ‘pin’ articles or pictures, similar to Pinterest, to name a few.
Many of those efforts came after Twitter stunned Wall Street in January by reporting its slowest pace of user growth in recent company history -- just two months after its splashy coming-out party.
Since then, Twitter has lost 33 per cent of its market value. Yet at $US26 billion, the company still trades at 37 times sales, against 19 for Facebook, which boasts almost six times as many users as Twitter.
Indeed, bullish analysts argue that the company is on the cusp of realising its larger potential. Five months after its debut, Twitter stock remains above $US40, versus its $US26 offering price.
Unlike Facebook, which was caught flat-footed in 2012 when its users migrated to mobile devices, Twitter has always seemed better poised to make money off of its smartphone user base.
The company secured a strategic asset last September when it splashed out $US350m on MoPub, an advertising network that distributes ads within hundreds of mobile apps.
MoPub has delivered several technological advancements in recent weeks, including the ability for advertisers to execute cohesive campaigns by placing ads within apps as well as into the Twitter stream simultaneously.
Bullish Twitter analysts say there's more to come.
Although rivals Google and Facebook dominate mobile advertising, Twitter's ad machine may get a jump-start once it places targeted ads in apps tailored for users and their interests, which will extend the platform’s ad reach far beyond its 241m users.
Indeed, Twitter’s advocates on Wall Street argue that it is best-placed to grab a significant slice of mammoth TV ad budgets because of its growing presence as the ‘second screen’ that TV audiences turn to online to weigh in on their favourite shows.
"Twitter is one of the best plays off two of our 2014 internet growth factors: increasing mobile materiality and the online migration of TV ad budgets," RBC Capital Markets analyst Mark Mahaney, who has an outperform and $US60 price target on the stock, argued in a research note.
But the company "needs to prove two things: that it can successfully increase its reach with advertisers; and that it can successfully increase its user base and engagement levels”, Mahaney wrote.
Analysts expect Twitter to have lost almost $US159m, or about 3 cents a share, on revenue of $US241.47m in the January-March quarter, according to Thomson Reuters I/B/E/S.