Twitter is in trouble – and that news should surprise precisely nobody

US Outlook: In a raging-bull market, Twitter’s stock is turning into a dog

Twitter has lost its shine among many social-media users under the age of 30 (AFP/Getty Images)

If only newsworthy tweets brought in real money, by now Twitter would probably be cruising past Apple as the world’s most-valuable company. Sadly for Twitter, 140 character messages – no matter how stupid or newsworthy – are proving a difficult platform on which to build a multibillion-dollar business. Twitter is not in immediate danger of joining MySpace in the social-media graveyard, but just being mentioned in the same sentence is not a good place to be.

Many more weeks like this and that comparison might become more commonplace. On Tuesday, the market data company Selerity published (via a series of tweets, of course) Twitter’s first-quarter results ahead of the schedule, which sent the stock into freefall. The Nasdaq stock exchange, which hosts Twitter’s investor relations data, subsequently accepted responsibility for publishing early. However, as it turned out, such carelessness was the least of Twitter’s concerns. Missing forecasts on just about every measure is far more serious, particularly after the chief executive, Dick Costolo, had waxed lyrical about pending improvements as recently as the last (equally disappointing) set of quarterly results.

If Twitter is going to turn into long-term results the potential that many people believe it still has, Mr Costolo needs to find new employment, preferably before the next set of results is due. It’s not necessarily his fault that Twitter is struggling to generate the kind of returns investors hoped for in an increasingly crowded marketplace, but it certainly is his fault for making promises that Twitter is unable to keep. Mr Costolo claims that he is “not worried” about his job security. That much is true. Someone will offer him another gig soon enough.

Here is another reason he should go: in a raging-bull market, Twitter’s stock is turning into a dog. The stock lost a quarter of its value last week, and was trading around $38 on Friday afternoon, having traded as high as $51.66 on Monday. Its initial public offering price in November 2013 was $26 a share, but the stock actually opened at $45.10 on its first day of trading. It is easy to say with hindsight, but punting on a Nasdaq index tracker would have been a far better idea.

So where does Twitter go from here? Mr Costolo might have been overly bullish in his forecasting, but Twitter is not about to fail. Its potential might be proving tough to unlock, but it is still there. The holy grail of social media is, of course, advertising dollars and Thursday’s $500m acquisition by Twitter of TellApart, an e-commerce advertising technology outfit, should improve Twitter’s ability to generate revenue. On top of that came confirmation of a deal with Google to provide advertisers with better analytics of their Twitter ad performance metrics. Giving advertisers a better idea of how many users are actually taking notice of ads is a useful selling tool, even if the risk is that it might not turn out to be what advertisers want to hear.

Twitter’s real problem is an incredibly competitive market and hanging on to active users. This is not a recent development. In a world where many people under the age of 30 have an attention span that would shame a goldfish, Twitter has lost its shine. Twitter just isn’t Premier League, although to be fair the Premier League of social media has only one team in it: Facebook. SnapChat and Instagram have stolen Twitter’s thunder and there are also a host of smaller players including Bubbly, Whisper and WeChat waiting in the wings.

Social media is an easy come, easy go world. Even Facebook faces an uncertain long-term future as old fogeys like me make up an increasingly large proportion of its users. Twitter’s problems are not news to investors or followers of the stock, but it must turn things around or face obscurity.

DuPont may not demerge but plenty of companies should

Inviting a hedge fund manager on to the board of a company is usually about as good an idea as asking the town drunk to look after the keys to the bar. That’s what the proxy adviser Institutional Shareholder Services suggested doing last week, giving its support to Nelson Pelz in his attempt to get a seat on the board at DuPont, the venerable US chemicals giant that has been a constituent of the Dow Jones since 1924.

Mr Pelz is another one of these “legendary” activist investors most people have never heard of but who seem to be ten a penny these days. His fund, Trian Partners, controls just under $2bn of DuPont stock. In general, activist investors make extremely uncomfortable boardroom bedfellows. This is different. Not only is Mr Pelz very far removed from being the town drunk, but by the standards of most hedge funds he is a genuine investor who has proven himself willing to take his time. And, rather than being after DuPont’s cash, he is advocating for something infinitely more sensible: to break up DuPont, separating its agricultural and industrial units.

In some ways, it would be a shame to break up a company that has been on the go since 1802, when it was formed by the French émigré Éleuthère du Pont de Nemours to tackle America’s unquenchable thirst for gunpowder (still a good market by the way). However, the current management, under chief executive Ellen Kullman, has done what is generally perceived to be a good job and a forced break-up is unlikely to happen any time soon, even if Mr Pelz gets his seat on the board. So the weirdest part about supporting Mr Pelz is that breaking up DuPont isn’t even such a great idea.

What is a great idea is advocating for demergers in a much more public way. Markets, investors and (obviously) deal makers are still hooked on a mergers and acquisitions strategy, convinced that the only way to build value is to merge, buy and merge again. That strategy needs challenged, and by supporting Mr Pelz maybe markets will start to give demergers more consideration.

Goldman Sachs recently called for the break-up of JPMorgan, which is funny because a lot of people think that Goldman Sachs should be broken up too. Hanson shareholders did pretty well out of its demerger, and there is a substantial body of academic evidence to suggest that demergers are better for shareholders than mergers.

So while DuPont may not be the best place to start, Mr Pelz will find that there are plenty more fish in the sea.