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    Wall Street Is Still Trying to Figure Out What Twitter Is

    Written by

    Yannick LeJacq

    A banner outside the NYSE marking Twitter's IPO last November 7. Image: Shutterstock

    Yesterday, Twitter gave its first public earnings report since it made its initial public offering last November. Analysts and investors were waiting for this week's news with bated breath, both because of the residual fear of repeating the disaster that was Facebook's IPO years prior and the simple fact that Twitter's revenue plan is, in the words of Marketplace's Ben Johnson, "at best…still emerging."

    So how did the little blue bird do? The short answer seems to be: depends who you ask. Last night, most of the news pouring out of the financial and business press was pleasantly surprised about the fact that Twitter had managed to beat Wall Street's jaded expectation that it would lose two cents per share. And while it didn't exactly smack this one out the park, Twitter did say that it had managed to earn $10 million—roughly two cents a share.

    That wasn't good enough for investors, though. The company's stock quickly began to tumble downwards in after-hours trading Wednesday night. By the end of trading Thursday afternoon, shares had fallen almost 25 percent, meaning the company lost almost $10 billion in market value.

    Why the sudden change of heart? There's one obvious, glaring problem that Twitter is facing: the company still hasn't turned a profit. But that's been the case since last November, when the company first received an astronomical valuation that traders took to with gusto—bumping its shares up 73 percent its first day on the market.

    The real issue, highlighted in a Reuters report today, seems to stem from the financial community's confusion over what, exactly, it thinks Twitter is. Or what it should be, for that matter:

    Twitter, according to broker assessments, is either the overvalued owner of a niche product whose potential is fading or an undervalued phenomenon that is set to give Facebook a run for its money in mobile.

    Remember that last week, Facebook gave an earnings report of its own with markedly different results: the company wowed analysts and investors with the news that it was all of sudden killing it in its fast-growing mobile advertising business.

    Many analysts took issue with the slowing rate of new user acquisition. Image: Twitter.

    But there was one thing that both Facebook and Twitter seemed to share: both were slowing down dramatically in their user acquisition rate, particularly compared to younger rivals. Given that Facebook boasts over a 1.2 billion users and is the largest social network in the world, this is a much bigger problem for Twitter than it is for Mark Zuckerberg's business.

    Still, it seems strange to do direct comparisons between the two companies in terms of their user count simply because being a "user" on one service versus the other is such a different experience. Ostensibly, most of the people you interact with on the former are your "friends"—Facebook specific or otherwise.

    Twitter, on the other hand, has always established a sense of hierarchy within its ecosystem by making the amount of followers and tweets one has so readily apparent. There are countless ways that these differences foster different cultures within each, and in doing so, prime us as users to accept things like advertising and e-commerce.

    The problem for Twitter is that now that it's not a startup being lionized by venture capital funding, these kind of subtle intricacies don't really mean anything to its new crop of investors if the end result is a continued inability to turn a profit. For better or worse, the company is going to have to start thinking more clearly about its bottom line than it has so far. But the key question is whether the people using the service every day versus those watching it so aggressively on Wall Street will find a compromise both can be happy with.

    Topics: twitter, Social Media, business, money, power, tech, silicon valley

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