Plenty of tech start-ups begin life as loss-making enterprises. But eventually they have to turn a profit, or they risk losing investor support. Twitter is now at this crucial junction and is treading on very thin ice with shareholders.
Since its high-profile New York listing back in November 2013, Twitter’s shares have lost their shine with Wall Street after failing to turn a profit. In fact, Twitter continues to lose a lot of money. In 2014, the company reported a $578m pre-tax loss (£372m), despite raking in $1.4bn (£908m) worth of revenues.
If you look purely at the accounts, the big culprit here is spending. Last year, the company forked out $691m on research and development, a 16pc increase on the year before.
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Sales and marketing costs nearly doubled to $614m, while general administrative expenses increased by more than 50pc to $190m.
Together, these costs total $1.94bn. That’s well above the $1.4bn revenue figure. If Twitter continues to be so profligate, it will struggle to stem losses.
But accounting aside, Twitter’s biggest stumbling block – and the reason why many analysts are rather bearish on its prospects – is because it lacks mass appeal. Indeed, Twitter isn’t really a mainstream platform. Most of your friends are probably active Facebook users. Few will regularly tweet.
Last year, 44pc of accounts had never posted a single tweet, according to a report. And even then, many users only tweet sporadically. Unlike Facebook, Instagram or Pinterest, Twitter doesn’t really hook its users. People will often sign up, tweet for a few months, and then forget about it. It’s difficult to build momentum in a business if you don’t have an engaged, loyal user base.
One reason why Twitter lacks mass appeal is its limiting nature. Twitter allows users to publish text messages – a tweet – of just 140 characters. That’s great for politicians, celebrities, journalists and news junkies, but it doesn’t really resonate with the masses, many of whom simply want to keep up with friends and family by sharing news and pictures.
Unlike Facebook, Twitter also lacks an algorithm to bring content that is important to the user to the top of their Twitter feed. That means that nothing gets filtered out. Users are therefore bombarded with hundreds, if not tens of thousands, of tweets each day. That can be quite overwhelming — not to mention off-putting — for the casual user.
Advertising sales growth has also been patchy in recent years and some of that might be down to the limiting nature of the adverts. They’re pretty dull, merely tweets promoting a user’s stream. They lack the dynamism of those on Facebook, Snapchat, and Instagram.
hoping to see the sparrow chirping in next decade
