Is Twitter Leaving Revenue On The Table?

  • Twitter's stock rose as a result of news about investment by Saudi billionaire.
  • A range of innovative features have been announced.
  • Twitter is struggling to reach its IPO valuation.
  • This social media giant is being out-competed by Facebook.

In a move which caused Twitter stock to rise 8%, Saudi billionaire, Prince Alwaleed Bin Talaal increased his stake in Twitter (NYSE:TWTR) to more than 5%, making him the 2nd highest shareholder. Prince Alwaleed is a shrewd businessman; therefore, this business  caused considerable intrigue around the Twitter stock. It continued to rise following the announcement, before the rumors of impending layoff took its toll.

Additionally, Twitter announced the rollout of its Video Amplify program, which allows for users to build relationships with advertisers. Twitter takes 30% while publishers get 70% of revenue generated. This is an act of commitment to increasing Twitter revenues.

Moreover, Twitter has announced 'Moments', a content curation solution which groups tweets based on categories, and live events. Periscope hasn't yet been integrated; however, expect that to happen very soon. Moments is arguably a better experience on mobile, and this 'mobile-first' approach is likely to enable Twitter to gain in the 'attention battle'. Plus, the more time users spend on the site, the more ads can be displayed, and therefore, the higher the revenue generated.

However, with all of the strategic moves, they are still leaving money on the table.

Self-serve ads

Twitter's self serve ads platform doesn't give advertisers the degree of targeting which Facebook (NASDAQ:FB) provides. Furthermore, it is typically more expensive to advertise on Twitter than Facebook. For instance, the cost per follower price for Twitter is typically $2+. Therefore, Twitter ads isn't cost effective for advertisers on a budget.

Moreover, the targeting options aren't as expansive as Facebook's. Therefore, advertisers in niche industries arguably aren't able to generate a ROI similar to what Facebook would be able to provide. This isn't much of an issue for brands or big businesses who want to get their message out to a lot of people; however, this means advertisers on a small budget aren't being catered for.

Catering for every advertiser no matter their budget is something that Facebook does particularly well, plus the cost per fan acquisition on Facebook is much less than on Twitter.

Acquisitions

Periscope: an innovative live video streaming platform owned by Twitter, and is gaining considerable traction. Moreover, Vine is a micro-video platform with 200 million monthly active users, and is also owned by Twitter. However, Twitter is yet to monetize these platforms. As a result, one can argue that Twitter is leaving considerable revenue on the table.

On the other hand, Facebook owns Instagram, which has more monthly active users than Twitter. Plus, Instagram is about to take their self serve ad platform global. Moreover, Whatsapp- another Facebook acquisition- has more than double Twitter's monthly active users at 900 million. Therefore, Facebook can make considerable revenue once they monetize Whatsapp.

Growth

It is worth noting that Twitter's stock is currently valued below its IPO of $41.65. At time of writing, Twitter is trading at $30.86.
TWTR stock chart

Source:Twitter Stock Price Data by amigobulls.com

There are a number of reasons for this:

1) Twitter's revenue is many times lower than Facebook's.

2) It is unclear the type of social network that Twitter is going to evolve to. When Twitter launched, people enjoyed the simplicity of being able to send short messages out to followers, and to follow famous people. However, now with the rise of Instagram and Vine, users can have an arguably more intimate experience with celebrities and fans.

3) Tech investors are constantly comparing Twitter to Facebook. And with Facebook's share price going up every year, while Twitter's has actually declined, it can seem wiser to put your investment in Facebook.

4) Facebook is constantly developing innovative solutions to:

  •       increase the average time users spend on Facebook
  •       Add value to advertisers- a major source of revenue

For instance, Facebook has an apps platform, and recently introduced an 'audience network' ads option which allows advertisers to increase the reach of their ads.

Conclusion

In conclusion, Twitter's CEO has to decide on the kind of social network Twitter should be, and find ways of leveraging this superbrand into something advertisers and users are deeply invested in. At the end of the day, Facebook's stock is on the rise while Twitter's has failed to even get to the IPO valuation. Therefore, there is one clear option for investing your money.

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  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

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