Twitter Expected to Struggle in Coming Quarters – Currently Grossly Overvalued

Twitter IPO experienced huge success and created buzz of exponential growth potentials. The current environment of Internet centric companies garnering high valuations supported Twitter equity price and investors jumped into bandwagon to make profits in long terms.

Recent acquisition of WhatsApp by Facebook also fuelled analyst optimism. Post IPO most of the analyst cautiously optimistically supported valuation as Twitter projected aggressive approach to acquire more user and subsequently monetizing user assets.

Q4, 2013 results and projected 2014 offered few shocking facts around Twitter struggle to acquire more users. As the monthly active user base growth were in high single digit but showed good traction of Mobile monthly active user base of 184 Mn.

The growths in developed geographies are muted whereas Twitter is focusing on Emerging countries to gain more user base. One such example is their collaboration with highly successful TrueCaller to generate additional traffic as well as create an environment to lure additional user base on Twitter platform. The current monthly user base of around 241 Mn is generating around $0.3 Advertisement revenue per active user per month. Notably Twitter 90% of revenue comes from Advertisement. The EBITA margin for Q4 and 2013 came around 18% and 11% respectively. Interestingly most of the investors ignore stock based compensation which inturn will dilute total equity and its impact on Earnings per share.

On considering projected 2014 revenue range of $ 1.15 to $ 1.2 Bn seems distant. To achieve revenue and EBITA growth of around 85% and 100% YoY require Twitter to achieve 50% monthly active user base to command higher price point for advertisement.

The major hurdle for Twitter is to convert Emerging geographies into revenue generating userbase. It is very common in emerging countries that new user uses any service for few months and then move to another one. The micro blogging segment falls into premium service whereas messaging falls into mass segment. The recent move by Twitter is to monetize their user inventory to attract advertisers but it also irritated many loyal userbase. Given the current trend of user adoption, even if Twitter achieves 20% growth in monthly active user would require to generate minimum $1.11 per active user to achieve forecast for 2014. Does one feel that it’s achievable! The current market capitalization of around $30 Bn and EPS of (-$3.41) clearly indicate that Twitter is far from growth which is experienced by peers. The projected capex of 330-390 would put pressure on their cash flows and current cash position of $2.2 Bn is going to be used in future to expand their base. With bleak success probability, it is widely expected that any quarterly disappointment in Q1 and Q2 is going to bring down current share price downwards drastically as the indication were offered post Q4,2013 result.

In my point of view, Twitter will continue to struggle due to attached service nature which falls in select categories and further monetization effort may trigger exodus of loyal user base as the beauty of Twitter service was its cleaned service offering. On emerging market segment, they may face uphill task to grow due to regulatory and other aspects. Why not to invest in dividend yield based companies with strong market positioning such as Oracle, Cisco System and many others

Why Optimism Around Home Grown E-Retailer Will Fade Soon.

The recent upsurge in e-Retailer segment business attracted analyst as well as retailer to claim explosive growth potentials in said segment. The CXO’s level of most of the Indian companies came out with growth projections which reminds me Telecom VAS forecast that happened in 2007. At least, Telecom VAS forecast came out as dump and many investors which include both PE and equity holders in publicly traded companies suffered huge losses.

Last many weeks, most of the print media focusing on growth potential in Indian Online marketplace and potential higher adoption of Indian consumer space includes WEB and WAP user base. All cheered Flipkart achievement of $1 Bn revenue club in short period of time and ended up comparing with the likes of Amazon and predicted that Indian Online e-Business is going to achieve multibillion $ club in next few years.

The recent investment by PE’s in Indian Online e-Retailers cheered many and as a result many new e-retailers jumped in fray with focus on valuation. E- Retailers also projected that the exponential growth of Smartphone adoption in India is going to offer them additional opportunities to create business but seems they missed many factors on ground level.

Some Of Them Are As Follows

1. How many e-Retailers are profitable?

2. How many users are using their credit card?

3. What is the cost of user acquisition?

4. What is the conversion rates w.r.t consumer visits?

5. The cost involved in payment mechanism due to CoD?

6. What is the repeat user percentage?

7. How many Smartphone users are using devices to place order?

8. Did e-Retailers offer guarantee to maintain security and privacy concern around device to offer seamless secure payment mechanism?

9. Who would be responsible for data theft in case of wireless hacking?

10. And many more

All investors are rushing to invest in e-Retailer in hope that down the line the online market space will mature and they will make money out of it. In my point of view, that is over optimism as retailers must focus on innovative approach to attract user and offer secure solution. Creation of Mobility Applications as well as offering product at discount to attract user is not going to work in long run. They invest heavily in promotions but given the total internet user base in India, it’s not justifiable.

India is a place of organized retail market and if e-Retailers want to entrench that segment to attract user towards their platform, they must focus on platforms and delivery mechanism supported with extraordinary consumer support management. Post aggressive push by International players such as Amazon it would be extremely difficult for home grown players to match them as International players already crossed the teething problems and exactly know the consumer dynamics and nodal points which works with consumers. Hiring top grad is not going to work but viral connection with end consumer is going to work. Indian marketplace is Atypical where any new approach gets lots of attentions. Once consumer experiences any issues then it’s a lost customer forever.

In the mobility approach home grown retailers must recognize that the money they spend on Print can be used to acquire consumers in one or another way. It would bring better conversion probability compared to current approach. In my views, early growth attach to any new sectors are in exponential curve and subsequently in high single digit. We must learn this aspect with growth story of Telecom sector. I also believe that some of the players would come up with strategy which is going to crack the potential and consumer adoption but for that strategy needs to be completely out of box rather than copycat.

Mantra To Be Successful In Indian Application Market

The recently loved domain of Telecom industry is Applications post exponential growth in Smartphone. The ongoing and projected growth story around Smartphone created lots of optimism among Applications providers to cash in after you approach.

Some of the Applications providers instantly achieved good traction and number of Applications are being pushed towards mobile users. Interestingly, the surge in Smartphone growth pushed most of the companies started realising the value of mobility user and jumped in bandwagon to offer Application to capture additional customer stickiness and any opportunity to generate revenue.

Many companies as well as Applications developers rushed to capture consumer base without focusing on the basics. Most of the companies based on my opinion post reviewing many Applications missed to

• Understand Indian Regulation
• Understand their Do’ and Don’t w.r.t user information
• Understand the logic of Terms and Conditions
• Understand the Security regulation of India and its importance
• Protect Consumer and Prosumer personal information
• Understand Indian regulation on Infrastructure hosting to offer Applications or its associated services to consumer or prosumers
• Understand to respect Private and privacy policy of India
• Understand consumer and prosumer requirement
• Understand consumer usage pattern
• Understand consumer paying pattern
• Understand consumer preference management
• And Many More

Most of the companies only focused to collect contextual information and focused in monetizing the same. The business environment would be totally different if Applications providers will start focusing on above mentioned point. The implementation of above would be time taking and require cross segment expertise both in technical and business to map and evaluate conflict analysis.

I strongly believe that post recent initiative by TRAI and other regulatory bodies situated in MHA, FM would come up with regulatory mechanism which is going to increase Applications offer very expensive but would automatically clean many organization offering Applications by violating Land of Law in and out.

Why Microsoft Move To Position Nokia Android Device May Falter

Just before closing Nokia deal, Microsoft played strategically. They positioned Nokia Android device without being held responsible for recognizing Android success. The projected price and performance of proposed Nokia Android device is not fulfilling the competitive threshold. On minute assessment it’s clear that there are other players offering better specifications at 20-30% lower price points. The Camera specification of 3MB without any front camera support is one of the weakest linked coupled with RAM specs whereas now standard is minimum 5MP and 1GB RAM.

Interestingly, Microsoft in the last few quarter realized it loud and clear that there Lumia play is not picking up as Average selling price is going down and they are not getting good traction in major geographies like US. The other realisation by Microsoft that Nokia is king of low end device and major adoption of Asha platform based device left them vulnerable of losing market share in case of Microsoft insistence of constantly focusing on Window Mobile OS push.

In IDC released report, Nokia capture more than 14% total device market share in India where the market size is around 250 Mn per annum but unfortunately they were pushed out of top 5 Smartphone in India. It is indicative that Microsoft cannot afford to let go huge chunk of loyal Nokia customer. They also realised that it would be better to adoption strip down version of Android to broaden the probability of market share gain rather than keep on focusing on Asha platform.

As, I constantly reminded post Microsoft announcement of Nokia that Microsoft is not interested in device but using it as a medium to promote its other services. The upcoming Android powered device is nothing but validation of my raised point. Most of the Microsoft product such as Outlook, Bing, Cloud services, one drive, Nokia Maps, Nokia Store and BBM is going to be integrated in order to capture some of the traffic from Google.

Microsoft and Nokia must recognize competitive landscape in Android ecosystem where every alternate day there is price reduction by one or another OEM’s whereas the suggested price point of Nokia upcoming Android device to too pricy and may face uphill task to command premium from consumer with many of Android ecosystem features are missing. I strongly believe that the move is going to bring additional potential customer on their deck but it would be difficult for their sales team to convince users to use device which is so much Microsoft centric. We all must admit that Google did one thing beautifully that now most of the Android ecosystem users are used to use Google centric services. The change in environment may turn out to be show stopper of Nokia to get their adopted apart from Price points.

I will keep my finger crossed and would wait eagerly to see the potential traction by Nokia.

Draft Telecom Security Policy – First Potential Salvo From Regulators To Control Misuse Of User Contextual Pattern

The Indian regulatory bodies in a correlated effort came out with draft telecom security policy fulfilling the requirements and expectation of home ministry to lawful agencies. The proposed policy would put the onus of user information protection to Telecom ecosystem players.

In my recent blogs, I have been raising the concern of used mechanism of diverting user contextual information by the companies to take the undue advantage of user preference. There are “N” number of Applications offered by domestic and international companies by taking the consent of user under Terms and Conditions which none of the applications user read.

Even after repeated attempt by Indian regulators, many companies managed way around to keep on retrieving user information which intern affected end user. I am also sure that many of the users must be receiving redirect attack. On personal basis, I received many and charged premium tariff for the same. The first query pops up from the same that how come such traffic pass through claimed secured network.

Post the higher adoption of Applications and Off Net hosted service offering through cloud started violating many Indian regulations. Interestingly many companies offering through that said model don’t even get bothered to look into regulatory and always focuses on legal compliances.

The proposed regulation implementation is going to create the same havoc the way MVAS regulation created in India. When I look into the current scenario of in and out security breach, I believe that its utmost important for regulator to enforce all. The current and expected trend of m-commerce and m-payment adoption, it is important for all to make sure that device based malware or phishing to network centric vulnerability donot happen otherwise it may cripple the whole ecosystem. It is also clear that many security breaches are not being reported to lawful agencies whereas lawful agencies are not being able to tap in the user initiated information due to lack of infrastructure compliance by the service and other ecosystem players. The proposed one is going to be boom for some companies and bust for many. Many top notch Applications offered by International companies may see their business opportunity dry down in no minute if the draft gets converted into policy.

Whatsapp And FB Deal Educated Many – Voice Initiative Must Brace For Surprises In India

The acquisition of WhatsApp by Facebook attracted pro and cons assessment. As I mentioned in my previous blog that Facebook intention was simple and that was to eat out potential competitor. The deal brought Oracle acquisition of PeopleSoft, Siebel and SunMicrosystem to protect their turf and pricing power.

Facebook also realizes that their major chunk of active user base is from Emerging countries including India and WhatsApp India user base is around 35 Million. Whatever is the deal proposition but it offered enough insight about hidden revenue potential by indirectly targeting user base.

It also opened multiple open issues which industries and regulators are trying to answer. Some Of Them Are As Follows

• What is the use of UASL regime in India if any OTT players comes in and capture market with minimum to no investments?
• Is there any regulatory loop hole which is being used by OTT players?
• Do OTT players know about Indian regulatory environment and its implications?
• Did regulators neglected OTT segment and missed to regulate the same?
• Why telecom operators are forced to buy in spectrum to offer Voice and text services when the same can be realized without buying any spectrum?
• Why regulators missed to identify the revenue leakage from OTT applications where OTT players used data path to reach out to user base and indirectly inflicted Mobile Operators with major revenue drainage?
• Why Applications segment is non-regulated?
• Why OTT players using Telecom network path as delivery mechanism are not being forced to buy in licenses?
• And Many more

The above queries are only few one and it clearly offers one answer that regulators must be more visible in order to maintain level playing field. Interestingly, major service providers as well as government officials also started talking about regulating OTT players.

One must recognize that OTT players offer great level of value to end user but at the same level inflicted major impact in negative way to Telecom ecosystem.

The recent announcement by WhatsApp that they would be coming out with Voice enabled service. With the attached service like social networking, messaging and voice, Facebook may kill their competitors.

It is widely expected that Facebook may face lots of hurdle from Indian Telecom ecosystem even though Facebook CEO met Indian Telecom Sector visionary to expand Internet.org initiative.

I am pretty sure that the Indian Telecom regulators, MHA, Intelligence Agencies will not leave any stone unturned to make sure of compliance as well as monetization for government.

It would be interesting how Blackberry position its BBM service against impeding move by WhatsApp