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Twitter may be the next MySpace

March 27, 2014: 1:29 PM ET

The little blue bird is bruised and battered. Shares of Twitter are tumbling this year after their hot IPO last November.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Maybe Ellen DeGeneres broke Twitter after all?

I'm being glib (that's for you Tom Cruise and Matt Lauer!) of course. The fact that shares of Twitter (TWTR) are down more than 15% since the selfie seen around the world is a coincidence. As Twitter phenom @ritholtz (and pretty much every economics and statistics professor) is fond of saying, correlation is not causation.

And Twitter was falling even before the Academy handed out the golden statues. Shares are down almost 30% this year! That makes it the second-worst performer in CNNMoney's Tech 30 index. Only Sina (SINA), which owns Chinese Twitter equivalent (and future IPO) Weibo, has fallen harder.

Still, Twitter's post-Oscars slide is quite astonishing. After all, the Academy Awards telecast was more like a three-and-a-half hour infomercial for Twitter than it was a celebration of the best movies of 2013.

But Twitter has not benefited from all the praise that the dance-loving voice of everybody's favorite animated blue tang fish lavished on it.

Twitter has a bigger problem than some of its most popular tweets disappearing. That glitch appears to be fixed as Ellen's start-studded tweet is back on Twitter after mysteriously vanishing earlier this week.

But Twitter's market value continues to disappear. Why? Simply put, it seems that investors have come to the realization that the company may not be the next Facebook (FB) or Google (GOOG) after all.

Even though it seems like you can't turn on the television or go online without some promotional hashtag hitting you in the face (hello #MarchMadness), I think Twitter remains an enigma to most people. The user numbers (reported by the companies themselves) bear that out.

Facebook has more than 1.2 billion active monthly users. And that doesn't include Instagram or any new users it may acquire when the WhatsApp purchase is complete.

Twitter has "only" 241 million active monthly users. The often-maligned Google+ has more than twice as many as Twitter: 540 million.

Making matters worse, Twitter is no longer adding users at a breakneck clip. The number of users rose less than 4% sequentially in the fourth quarter.

Related: Twitter forecasts slowing sales growth

So it's understandable that the stock is now in a curse word synonymous with toilet that rhymes with Twitter. (Sorry. I have a 4-year old boy. Potty humor is the height of comedy these days.)

And Twitter has so far failed to diversify as Google and Facebook have done. That's a problem.

Sure, Twitter has Vine. But short videos are not exactly a quantum leap from short blog posts.

The new photo sharing and tagging tools on Twitter are also more evolutionary than revolutionary ... and they appear to be a more a case of Twitter playing catch-up with Faceboook and Instagram.

Twitter's foray into music has been a disaster as well. The company is shutting down its #TwitterMusic app and the Wall Street Journal reported late Wednesday that the company is working on a new music strategy.

It's clear that investors want Twitter to do something beyond selling ads tied to Promoted Tweets and Trends. When's the last time you actually clicked on something labeled Promoted, by the way?

Related: New tool for market junkies on Twitter

But Twitter is in a tough spot. Unless it has a great internal idea, it probably will need to buy some hot start-up ... just like Google and Facebook are. How can it successfully do that though?

Because of its sagging share price, its stock is no longer as appealing a currency to use for acquisitions as it might have been shortly after its IPO. (Remember the glory days of Twitter above $70 a share?)

Twitter also has just $2.2 billion in cash -- a small fraction of what Facebook and Google have. And while Yahoo (YHOO) has a big payday ahead of it with its stake in the upcoming Alibaba IPO, Twitter has ... nada.

Related: Marissa Mayer's war chest to grow

Twitter's growing pains wouldn't be that big of a concern if the stock were trading at a more reasonable valuation. But it is still insanely expensive.

Twitter trades at 220 times 2015 earnings estimates. That's absurd. Twitter is actually expected to post a profit this year ... but just a penny per share. So it's 2014 P/E is an even more laughable 4,600.

Now I can hear the grumbling from the momentum stock peanut gallery already about how profits don't matter for a relatively new tech company. Okay. Let's look at a price-to-sales ratio. Twitter is still no bargain.

The stock trades at 21 times estimated revenues for 2014. Google is valued at 5 times 2014 sales projections. Facebook's price-to-sales ratio using 2014 revenue estimates is 13.

Related: Facebook and Google are in a tech cold war

Hopefully Twitter will figure out a way to get more users interested in the service and also expand the experience beyond the Twitter platform. I truly love Twitter. You might say I'm addicted to it ... between the hours of 7:30 am to 4:30 pm on Mondays through Fridays at least.

Yet the more I use Twitter and realize how little I engage with the promoted stuff, I fear that the company could eventually suffer the same sad fate of MySpace and Friendster.

I'm not suggesting that Twitter start buying drone manufacturers and virtual reality device makers.

But give Facebook some credit. It realizes that it can't just be a social media company dependent on the fickle whims of advertisers if it wants to remain relevant.

I'm not sure Twitter has figured that out yet.

I'm the boy with the poetry power ... and Reader Comment of the Week! Meta alert. The next few paragraphs would not be here if Twitter did not exist.

First, I need to give a shout-out to a follower who quickly identified the band behind the lyric of my sweet-tooth themed Name that Tune challenge in honor of the King Digital (KING) IPO.

Correct, Jeff. Congrats. Although a more appropriate Jeff Tweedy song title to describe the King IPO might be Wishful Thinking. Or Poor Places.

Sticking with the Candy Crush Saga theme, one follower noted that while it may not have been good to be the KING yesterday, another publicly traded monarch was doing just fine.

Ha! Maybe King and Burger King should do a joint venture. Whopper Wipeout Saga?

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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