Tomahawk, WI 11/12/2013 (BasicsMedia) – The largely successful Twitter Inc. (NYSE:TWTR) debut on the Big Board last week and its continued upward rally on the browser has renewed interest in social networking stocks. Although Facebook is now where its investors want it to be, its debut was a disappointment and the social networking company which boost over 1 billion users took nearly over a year to recovery. However, TWTR has started well and is doing well so far, considering that its trading nearly double its IPO price.

While investor interest on the stock continues to soar after the successful listing, concerns abound as to whether the company can make money for investors. There are two critical issues which make this quite a big concern. First, TWTR has not seen profit in its seven years of existence. Second, the company’s user base has been noted to be decreasing.

Monetization remains an issue for TWTR

On the profitability case, TWTR is promising profits after two years. It means investors are asked to wait until 2015 before the company can start generating earnings per share. This is not a long wait anyway. However, TWTR’s advertisement strategy doesn’t look promising and ad revenues may not be as big as the market might desire it to be. TWTR’s platform allows its 500 million users which comprise corporate, political figures, celebrities and everyday person to promote themselves. This strategy should earn the company significant revenue in ads sale. But the downside is that majority of its users are not paying users. So it means that by the end of the day, or rather by fall of 2015, the company might still be holding little to show to its investors.

In order to live up to its commitment to turn profitable in two years time, TWTR needs to find within itself a monetizing approach that will squeeze the most revenue in ad from its 500 million user base. It is important noting that while the company is yet to record a single profit in its seven year of existence, its revenue has been growing which is a good sign that it could turn profitable through increased monetization and operating cost reduction.

How will TWTR deal with decreasing numbers?

The other concern is about its decreasing numbers. That TWTR is losing its user base rather quickly isn’t in the best interest of the company and its investors. It should be remembered user-base hemorrhage shock can extinguish an otherwise promising social networking company. Memories of Friendster and MySpace are still fresh and fear is about TWTR going the same route. It has been argued that TWTR should have waited until it attained a solid user-base before going public, just like FB did when it had more than 1 billion users. How the company hopes to contain the shock of user exit is still a mystery, but what’s certain is that if it doesn’t find a way out of this social networking industry jinx, it could be facing an uphill tax on the browsers, considering that FB is so determined to erode its gains.

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