Can ‘Buy Now’ Feature Drive Twitter Monetization?

  • Twitter experiments with the buy now feature by releasing it to a small sub-set of Twitter users.
  • The new feature may monetize users better, as it offers concrete data on the effectiveness of advertising on Twitter.
  • As advertisers will be able to instantly convert users through an ad, it may become a feature that Facebook eventually implements.
  • All of this bodes well for Twitter as it needs to figure out a way to boost monetization from its international user base.

Twitter buy now eature to drive monetization

A new feature has “accidently” surfaced on Twitter (NYSE:TWTR), it’s referred to as “buy now.” Twitter often does experiments by releasing certain features to a small sub-set of the Twitter population before hiding the feature again. In the case of “buy now” the service surfaced on some Twitter feeds, but disappeared soon after.

“Buy now” will improve engagement

My guess is that Twitter isn’t really experimenting to see if the new feature works, but rather how well do users engage with products that are sold on the Twitter timeline? That’s what’s important, because updates can be back-tested to ensure that the new feature is bug free, but knowing how users will respond is something you can only figure out with real-world experimentation.

Twitter introducing buy now feature

Source: Re/Code

The “buy now” feature looks like a more convenient way for mobile users to purchase products. In an increasingly digital world, where credit card data is more secure through linking to third-party payment services like PayPal and Amazon Payments, consumers may be less security conscious when engaging in ecommerce on Twitter’s timeline. Also, better monetization of mobile has been a key-concern for investors, as the number of smartphone users continues to grow at an exponential pace globally.

From the looks of it, Twitter’s new feature has a lot of potential, especially if Twitter were to earn a small transaction fee from direct marketing. Assuming that were to happen, both top line and bottom line expansion may happen. Also, the “buy now feature” may compliment Twitter’s sponsored Tweet. After all if advertisers can both advertise and sell product all on a single platform, the improved conversion rate along with objective performance metrics makes it easier for Twitter to charge higher rates for ads, or earn a small portion of the sales amount.

This could be particularly effective in the case of high margin products that are sold in high volume. One example that comes to mind is consumer electronics. Also, e-books and music can also be sold via this method. This leaves me with a favorable impression on Twitter, and it certainly indicates that there’s further room to innovate in a somewhat well-established business.

Also, Twitter’s new feature may displace some competitors in Twitter’s respective ecosystem. While auction websites like eBay are likely to thrive in their respective niche, banner advertisements may be seen as an even more inferior form of advertising. This new feature will allow companies to directly convert Twitter’s daily users, whereas banner ads lead to an opaque conclusion about the advertisements’ ROI.

Not to mention, if Twitter is able to successfully implement this feature, Facebook will most likely do the same, especially if the new feature accelerates revenue growth.

ONline commerce penetration

Source: Global Web Index

Currently, 65% of users in North America have bought a product online in the last month. Currently, 77% of Twitter’s user base is international; therefore the global average of 66% of internet users buying products online in the past month certainly helps Twitter’s monetization strategy. Especially, because ad revenue per thousand timeline views in the international segment is $0.61 versus the $3.47 from the US segment. The ad revenue per thousand timeline views is equivalent to the eCPM (earnings per thousand impression) metric that has become industry standard. Assuming Twitter is able to generate better monetization from users that are outside the United States, Twitter may be able to sustain its revenue growth.

Conclusion

There’s not a whole lot that we do know about the buy-now feature, other than the fact that it’s set to be released soon due to the underlying need for Twitter to monetize its international user base. However, there are on-going risks with owning the company as it does trade at extremely high valuations, and those valuations can only be justified with extraordinarily high rates of growth.

Amigobulls currently has a negative rating for Twitter (1.3/5). Twitter has a high P/S multiple when compared to the industry average multiple with a negative free cash flow margin and a negative return on equity.  When Twitter becomes profitable on GAAP basis this rating will most likely improve, but until that happens, Amigobulls will continue to stand by its current rating.

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