Twitter Doesn't Look That Good Underneath The Covers: Rob Enderle

Twitter Inc TWTR results were leaked online on Tuesday before the company was scheduled to declare it. Although the results were mixed, disappointment from revenue, guidance and the leak led Twitter’s stock to collapse during the last few minutes of trade on Tuesday.

Rob Enderle, president and principal analyst at Enderle Group, was on CNBC post Twitter’s results to discuss why it is a risky stock for investors.

Bad For Ads

“This is a very risky stock,” Enderle said. “Of all the social networks with the possible exception of LinkedIn have a full decouple between the customers that use the service and the people that actually pay the bills, that’s called the ad model. And the issue particularly with Twitter is the format, while it’s really great for the news service they provide, is really bad for ads particularly with regard to conversion.”

He continued, “People don’t go to the site to get these things on their mobile devices off and get them through third party applications and so the ads don’t even flow to a lot of these folks and the advertisers comes back and says, ‘yeah this isn’t really working for us’ and that’s why the revenues are down, even though customers are up.”

Monetization: A Serious Concern

On whether Twitter has other options to look for monetization, Enderle said, “They don’t have a lot of options in terms of monetization and if you look at their executive compensation, granted  it’s stock based, but it’s nearly half a billion dollar all by itself.”

“So, the company really doesn’t look that good underneath the covers and while it’s a very popular service, which is what’s driven the valuation up, the revenue doesn’t look like it’s going to come anywhere close,” Enderle concluded.