JOHANNESBURG — South Africa felt first hand how dangerous Twitter trolls can be at the hand of the Zuptoid machine. Fake accounts were set up a dime a dozen, and attacked anyone in pursuit of opening the State Capture doors. And while that battle is far form over, progress was made. But it might concern many that Twitter is only now starting to accelerate the crack down on fake and suspicious accounts. The down side to the business is that depending on how many accounts are suspended, it could put a lasso on the company’s growth and drag it back in. The share price, which at one point was down 9 percent on Monday, closed the day 5 percent in the red. The flags could officially be raised on July the 27th when the social media giant reports active users for the second quarter. – Stuart Lowman
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Twitter’s Wings Needed a Clip
(The Wall Street Journal) – Rumours of Twitter ’s TWTR -5.38% death turned out to be greatly exaggerated. So too, perhaps, were the hopes of its newfound life.
Twitter, like its main social-networking rival Facebook, has been cracking down on fake and suspicious accounts. The Washington Post reported late Friday that the company has accelerated its suspension of those types of accounts. That crackdown could lead to a decline in the number of monthly active users for the second quarter, results for which will be reported on July 27.
Twitter, which last reported 336 million monthly active users, saw its share price fall nearly 9% Monday before CFO Ned Segal tweeted that most of the suspended accounts don’t show up as monthly active users. Twitter’s shares closed the day down more than 5%.
A decline in users would be unwelcome for a company that appeared to be enjoying a solid recovery. Just a year ago, Twitter was in a deep slump as both advertising revenues and user counts were falling. Both trends appeared to have reversed earlier this year, as the company added 6 million monthly active users in the first quarter and grew its advertising revenue by 21% year over year. That gave the already rising stock another strong boost. Twitter’s share price had surged 53% from its first-quarter report to Friday’s close and was up 94% for the year. The company was added to the S&P 500 last month and is one of the index’s top performers.
Cleaning up its network is the right move for the business over the long term. But Twitter was already struggling with the perception that its audience may be peaking. The company’s base of monthly active users has grown by percentages in the low single digits over the past two years – much slower than that of the much larger, and far more profitable, Facebook. That was anticipated to continue, as Wall Street had been expecting Twitter’s user base to grow only 4% for the current year compared with 9% projected for Facebook – even with the latter’s numerous controversies of late.
Against that, Twitter’s surging stock price looked awfully expensive, even considering the company’s improving business trends. And Monday’s drop still leaves the stock trading at 133 times forward earnings – more than five times Facebook’s multiple. Twitter has shown it doesn’t need to become the next Facebook. Investors should stop trading like it will be.
Write to Dan Gallagher at [email protected].
