Twitter Hits a Wall

 | Feb 06, 2014 | 3:33 PM EST
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It's kind of shocking how much Twitter's (TWTR) user growth and engagement slowed in the fourth quarter.

The shares do deserve to be trading lower today. In fact, they deserve to be trading a lot lower than $50.

You cannot come out as a tech IPO saying that you have ambitions to get everyone in the world on Twitter, and then, on your first earnings call, say that Wall Street shouldn't focus on user growth and should instead focus on the opportunity to increase average revenue per user.

That would be OK if the stock were trading around $11 a share. Then I'd say it might be possible to do such a bait-and-switch without causing a material decline in the stock. At $70 or even $50 a share, though, this isn't possible.

What happened?

I've heard some folks complain that Twitter isn't easy enough. It's too complex to explain how to use for middle America (what Silicon Valley affectionately calls "normal"). Yahoo! (YHOO) was dead simple for middle America. Facebook (FB) is straightforward for mothers and grandmothers. Twitter isn't.

Twitter CEO Dick Costolo suggested that nothing was fundamentally wrong with Twitter and that Twitter just needed to be a better Twitter. While I agree that Twitter is too complex, I don't see an easy fix. You can't dumb down Einstein's theory of relativity. And you can't dumb down Twitter to make it more appealing. You lose the magic that is Twitter.

But there's another issue here, and it's related to the first: Group messaging apps have been exploding in the last year. Apps such as WeChat, Line, Kik and WhatsApp are continuing to grow by leaps and bounds.

For example, Line announced its fourth-quarter results last night as well. It had about $150 million in revenue for the quarter, compared with Twitter's $240 million. But Line's revenue grew over 400% year over year, while Twitter's grew 100% year over year.

If it's true that more people are opting for private group messaging than public tweeting, it's bad news for Twitter. What's worse, there's no easy fix. Twitter just can't buff up its direct messaging product and make it suddenly the next big thing in messaging. That ship has sailed.

It's going to be tough to right this ship.

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