Approximately three years ago, social networks gained some crazy evaluations. Investors scrambled to jump on Instagram, LinkedIn, Twitter, and any other network that looked promising.
Some of those social evaluations were higher than many suspected they were worth. But investors ran, paid, and waited.
Now, some of those networks aren’t really turning quite the profit that was once promised - the latest being Twitter.
No Trump Takeoff
President Donald Trump uses Twitter. He used it before he was president. He used it during his candidacy. He uses it now as president. His followers signed up for Twitter the minute he started campaigning (whether or not they had used a social network before). Twitter has become the place where people go to see what kind of thing Trump will tweet next.
So naturally Twitter assumed that advertisers would start flocking to the network, profits would start to churn, and investors would be happy. But that didn’t happen. What Twitter execs didn’t foresee was how populations tend to act. They came, they’ve seen, they’ve stayed - but they aren’t driving up profits.
A Rise and Fall
President Trump’s frequent tweets caused the number of Twitter users to jump from 2 million to 319 million. But the company has just reported a loss of $167m without any real plan to increase profits in sight. So what gives? Critics of the company note that Twitter employs a lot of people. Some speculate that Twitter employs more people than needed. Twitter is also really bad at ads.
The fact that the U.S. President uses Twitter regularly (and that users increased after Trump starting to use the network) should mean that Twitter is bombarding users with ads frequently. But they’re not. Plus, it’s really had to set up ads on Twitter and have them be effective.
If you’ve ever tried to place an ad on the network, you’ll see that the ads are clunky, hard to figure out, don’t always include your whole message, and just not really worth it. Plus, Twitter ads do not tend to drive traffic.
Time to Cut
So with too many employees (too many dollars paid out), not enough ads, and ads that just aren’t worth spending on, Twitter is a bit of a sinking ship. The company doesn’t have any plans right now to fix this problem either. For now, Twitter has enough money to stay afloat, but the company might not turn a profit anytime soon.
For some reason (that’s a little bit perplexing), Twitter isn’t working on any really solid plan to turn a profit or to change things. Instead, the company has told press that it will focus on quality. But that, as is clear, is somewhat vague. Twitter needs a much more solid answer to stay alive over the next few years.
Investors have started to back off of social networks in general (and for good reason). While they seem like sexy investments to begin with, they rarely have a future plan for generating a ton of profit. So if you are going to invest in social media companies, you might want to strike while the iron is hot and get out while you can.