Dropping below $14 per share, Twitter (TWTR) made a new all-time low on Tuesday as shares hit $13.90. This comes after the company actually beat earnings per share estimates and showed a slight acceleration in monthly active users when Twitter reported earnings in late-April.
However, revenue growth of 36.4% came in short of expectations and guidance also disappointed investors. Co-founder Jack Dorsey has only recently retaken the helm at Twitter and investors continue to question whether he can handle running both Twitter and Square (SQ) , a company Dorsey brought public in 2015.
Dorsey may need more time to make Twitter a better company. In order to do so, he needs to bring in both advertisers and users -- although the latter is proving more difficult. Without users, advertisers have little will to pay premium and as a result, have more pricing power when it comes to advertising.
Conversely, if Dorsey is able to reignite Twitter's user growth, the social media site will be able to command more pricing power from companies. Demand for ads should also increase it Twitter becomes a hotter social media platform for users.
One such method to drive user growth is Twitter's introduction of the "connect" tab, which helps new users find who to follow. Twitter already has an algorithm that allows users to find other users they might enjoy following. But now they've made it easier to do so. It also lets users find friends and family that are on Twitter and are listed in their contacts.
One of Twitter's biggest problems is new users being turned off from the platform for not knowing how to use it, what to Tweet or who to follow. It's unlikely Twitter will unveil anything ground-breaking at this point, but little by little, Dorsey is trying to make the changes necessary to drive user growth once again.
Twitter's deal with the NFL should also help keep users engaged.
Shares of Twitter closed at $14, down 2.8% Tuesday. Shares are down roughly 80% from Twitter's all-time closing high of $69.
One of the biggest gripes against tech companies from thorough investors has been the cover-up of costs. Specifically, they have been critical of stock-based compensation.
Companies are able to hire employees, compensate them with an enormous amount of stock, and ignore that expense when it comes to reporting profits.
Of course, that falls under non-GAAP reporting, but nevertheless, it's been an accepted Wall Street tactic that high-growth tech companies like Alphabet (GOOGL) , Facebook (FB) , Amazon (AMZN) and a slew of others have been using for quite some time.
Generally Accepting Accounting Principles - or GAAP - would include these expenses, and reportedly, so will some of the companies. Amazon started showing its stock-based compensation last quarter, while Facebook plans to do so going forward.
It seems like many investors have been taking the "ignorance is bliss route," instead preferring to ignore this concept. However, it could have a big impact on stock prices should they start to take valuation into account.
For instance, according to Bloomberg, Facebook shares trade at 35x forward earnings, but that figure jumps to 50 - more than 40% higher - when stock-based compensation is added back in.
The companies are still the same; the revenue growth continues to be incredibly impressive. But no longer can these companies pretend that recruiting top talent isn't a huge expense.
Facebook closed at $117.42, down 1% Tuesday.