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Sometimes it’s hard not being Facebook.

At least, it is if you are also considered a social media site.

In early 2016 Shares of LinkedIn  fell 30% after the online network targeting business people posted a fourth-quarter loss—and forecast 2016 to be weaker than prior expectations.  Twitter reported a loss of $90m for the last quarter of 2015.  Even though this loss was a big improvement from the loss of $125m in Q4 2014, it was not enough to prevent the stock price from tumbling another 12%– and that on top of a more than 30% decline already in place.

What is behind the hurt?  In a nutshell, high expectations and comparison with the growth of Facebook, even if that might not seem quite fair.

Twitter reported 320 million total users in Q4, up about 9% year over year, but unfortunately a number viewed as a ‘stall’ because it was essentially the same as the total users in Q3 2015.  Q4 was the first quarter in Twitter’s history in which the number of users did not grow.

So Twitter (NYSE:TWTR) stock took a beating, despite the fact that revenue—which one might logically assume to be the most important number—matched analysts’ expectations.  And the growth of those revenue figures?  Impressive.  They rose by a whopping 48% in Q4 2015 versus Q4 2014.  The brutal drop was all linked to growth  of users flattening out.

LinkedIn (NYSE:LNKD) has a very different business model than Facebook (NASDAQ:FB) , and boasts 414 million members in the fourth quarter—significantly higher than Twitter.   But LinkedIn also got hit on stock price– even though revenues exceeded analysts’ projections ($861.9 million Q4 revenue , up 34% YOY).  Driving the downside was the fact that LinkedIn  posted a loss of $8.4 million, after being slightly profitable in Q4 of 2014.  Lack of growth in profitability drove this loss.

The BBC’s Dave Lee @DaveLeeBBC had some strong comments on Twitter:

Despite new features, advertising campaigns and the constant publicity activity Twitter enjoys, it didn’t grow a lot… Twitter called it a seasonal lull… But that won’t cut it.

New features, especially mobile friendly ones, and attention to advertising may actually be part of the culprit for both networks.

Remarked LinkedIn Chief Executive Jeff Weiner about rising costs to:

…develop products, overhaul (our) mobile app and expand the sales force. In the fourth quarter, product-development spending jumped to $217.3 million from $150.3 million in the year-earlier quarter.

Weiner told analysts that LinkedIn would begin focusing on “high-value, high-impact initiatives in 2016.”

What that means basically is more ads appearing in user fees, which may represent a fast-growing and profitable product line, but may alienate some users.  So-called ‘native’ advertising, which many regard as ‘advertorial,’ or paid content designed to look like regular editorial content, is also offering bright prospects for LinkedIn, said Weiner.

Twitter also was expected to make significant changes in its service offerings to increase their user base:  expanding past the 140 character limit; a new feature that puts the “best tweets” at the top of a user’s feed, rather than in reverse order of posting, and more live video offerings.  These announcements were not warmly welcomed by Twitter users– within minutes, some began using the hashtag #RIPtwitter in protest.

Despite Twitter never having been profitable, and LinkedIn’s thin profits, the stock price drops are not really about revenues.  Revenues have been increasing in both companies, but the stock price has been primarily driven by growth prospects.  Investors bought into social media networks like Twitter and LinkedIn thinking they might grow at the same aggressive multiples as Facebook.  That’s why any downside to growth—even a flattening or “lull” in user growth or loss of that thin profit in a single quarter—has such a dramatic price on the stock price.

As Brian Blau, Research Director at Gartner put it, “With no increase in new users, but otherwise good financial performance, Twitter hasn’t yet shown how it can… grow the business.”

Put another way:  it’s not “What have you done for me lately?” or even, “What have you done for me today?” but more like, “What are you going to do for me in consecutive quarters—and don’t be wrong—or else.”

5i Solutions realizes that competing in the world of technology is tough.  Innovation is important, but it’s not enough.  You need to offer every advantage possible to your employees to help them power your growth in both customers and profits.

That’s why 5i offers more solutions that can make you smarter, faster, and more efficient.   Customized solutions for Document Management—instant access to any piece of important data, with full sharing by all.  Document imaging and processing systems that convert ordinary data into digital, searchable ‘smart data.’  And all held in a super-secure 5i “Cloud Vault.”

Tools and technology to help you grow your business.  And in business, sometimes growth isn’t the big thing.  It’s the only thing.

5i Solutions.  One single, secure point of intake, access, and storage.  One singular solution.

5i Solutions, Inc.

Learn more at http://5iSolutionsInc.com

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