Twitter Falls as Instagram Grows - Analyst Blog

Twitter Inc. TWTR fell for the third consecutive day on Mar 26, 2014, as share price dropped 7.2% to $44.43 to close the day. Year-to-date, Twitter shares have declined 34.2% as compared to the S&P 500's 1.1% gain.

Twitter is facing a number of issues that are troubling investors. The growing popularity of Facebook's FB Instagram among U.S. smartphone users, ban in Turkey and vanishing tweets are some of the concerns that have plagued the short-message-service provider to date in 2014.

Recently, Instagram surpassed Twitter in popularity as a mobile app among U.S. smartphone users. Per eMarketer, approximately 35 million Americans used Instagram at least once a month in 2013 versus Twitter's 30.8 million.

Instagram recently achieved 200 million daily active user base, per Facebook. The photo sharing app has started selling advertisements, which does not bode well for Twitter as advertising brings the major chunk of its revenues.

Moreover, Twitter's recent experiments that include the addition of the “share with followers” instead of retweets, much like a Facebook “share” and a Facebook-type new profile page failed to impress users.

Twitter's ban in Turkey is also a headwind. The company recently won a temporary injunction from a Turkish court, which will restore access to Twitter after it was banned by the government on Mar 21, 2014.

Reportedly, tweets were also vanishing from the website. According to CNBC, the famous selfie of Ellen DeGenres, disappeared from the platform for more than five hours. Twitter said that a bug was responsible for the disappearance of tweets.

Twitter's service has also failed to impress its users. Per a survey conducted by Deutsche Bank, Twitter needs better sorting and filtering tools that will make message management easier for users.

However, the same survey showed that user engagement remains very high, as nearly 50.0% of Twitter's daily active users use the short-message service once a day. We believe Twitter's recent initiatives that include tagging of photos for Apple's AAPL iOS and Google's GOOG Android devices will boost user engagement, going forward.

Moreover, according to The Wall Street Journal, Twitter is expected to announce a new music service this week. The company recently pulled off its music app from Apple's iTunes store. We believe a new music service will boost Twitter's user base, going forward.

Currently, Twitter has a Zacks Rank #3 (Hold).