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Twitter Has a Tough Act to Follow

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It's no Facebook, but that's not necessarily a bad thing.

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Last week's quarterly results announcement made it clear, if nothing else had, that Twitter (NYSE:TWTR) is not the second coming of Facebook (NASDAQ:FB). The question remains whether it is a whole 'nother thing of great value, as a social phenomenon and as a public company.

Certainly, Twitter's first quarterly earnings report showed that it can't match Facebook's unique trajectory as a social media phenomenon -- straight uphill, from a Harvard dorm room to 1.2 billion users worldwide in 10 years or less.

However, it must be said that it didn't take Twitter as long to figure out how to make money.

Twitter's earnings report showed that its number of active monthly users jumped 30% year-over-year, but rose only 4% in the last quarter of the year.

An equally disappointing figure suggests that some active Twitter users may be losing their enthusiasm for the service. The number of times users checked the latest updates in their feeds was up 26% year-over-year, but down 7% from the previous quarter. That was a first-ever decline in that figure.

Twitter now has 241 million users -- a respectable number, but an increase of only 3.8% in the quarter. That kind of growth isn't going to get them to the Facebook membership numbers anytime soon, maybe not ever.

The comparison to Facebook, and the expectation of similar growth, helped make Twitter a hot stock du jour on Wall Street. Now, executives there can only hope that investors wise up and value Twitter for what it is.

For one thing, it's a company that already knows how to make money, and it figured that out earlier in its life than most of its Web rivals.

Its report revealed that Twitter revenue more than doubled, to $243 million, in the quarter. Twitter's revenue comes from sales of display advertising, promotional tweets, and usage data to marketers.

Moreover, its mobile ad platform has taken off like a rocket, and now accounts for about three-quarters of all its income. Not incidentally, about three-quarters of its users now access it as a mobile app, not on a computer.

Company executives acknowledged in an earnings call that they need to work on making the site more engaging and more accessible to a broader audience in order to "get that flywheel of increased interaction happening," in the words of CEO Dick Costello.

Investors were not sold. The next day, Twitter stock lost about 24% of its value, to close at $50.03 for the day.

The problem may be that the general public, like the investing community, thinks Twitter is like Facebook, except that its status updates are really, really brief. Its 140-character format can seem like a gimmick, and an annoyingly restrictive one at that.

But to the one in five Americans who use it, the 140-character format makes sense. In fact, that bulletin format is a big reason why Twitter has evolved into a very different animal than Facebook.

Facebook enables the sharing of information within a closed circle of friends. Its efforts to be more than that -- to encourage browsing or searching for information, connections or entertainment beyond that circle of friends -- haven't really taken off.

Twitter lends itself to sharing among total strangers, linked only by their common interests, avocations, or pastimes.

Facebook users squawk at every effort to interrupt their semi-private conversation with promotion or advertising.

Meanwhile, Twitter users happily "follow" promotional tweets from their favorite shows, personalities, products, news sources, and bloggers, providing Twitter with a steady stream of information about their interests and pursuits, which Twitter can then use to sell more promotional tweets and ads.

It's a safe bet that Facebook wouldn't mind being in Twitter's tweet spot.

Both are, after all, in the media business. And when it comes to selling advertising, sheer numbers don't mean everything.

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No positions in stocks mentioned.
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