Why Twitter Stock Is Down 30% in 2016

By Markets Fool.com

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What: Shares of social network Twitter have tumbled 30% so far this year as of June 20, according to data from S&P Global Market Intelligence. The company's struggle to grow and monetize its user base continued this year, and a string of executive departures and disappointing earnings reports only added fuel to the fire.

So what: In January, various Twitter executives left the company. Less than two months later, The Wall Street Journal [subscription required] reported that Twitter was handing out additional stock and cash bonuses to employees in an effort to retain talent. With the stock down nearly 70% since peaking in early 2015, the company's heavy use of stock-based compensation to attract talent became far less effective.

Twitter's fourth-quarter report in February included year-over-year revenue growth of 48%, but the number of active monthly users was flat compared with the third quarter. Revenue guidance for the first quarter was also below analyst expectations, and the company spent some time in its shareholder letter pointing out various problems with its service that it planned to correct. A few analyst downgrades followed.

Twitter managed to grow its user base during the first quarter, adding 5 million monthly active users compared to the fourth quarter, but the company's revenue came up short of analyst expectations. The company blamed brand marketers spending less than expected. Analysts again downgraded the stock, and two more executives jumped ship in May.

Twitter's growth story, which propelled the company to a market capitalization in excess of $30 billion last year, doesn't look very compelling at the moment.

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Now what: Twitter is a wildly unprofitable company, posting a GAAP net loss of $438 million on revenue of $2.4 billion over the past 12 months. Much of this loss was due to stock-based compensation, a practice that has been diluting existing Twitter shareholders. At the end of the first quarter, Twitter's diluted share count was about 8% higher than it was one year ago.

Twitter offers a valuable service, but the company has so far failed to monetize it effectively. With executive departures, slowing revenue growth, and a stagnating user base, investors aren't very confident that the company can fix its problems and reinvigorate growth.

The article Why Twitter Stock Is Down 30% in 2016 originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.