- On October 27, Twitter announced a planned 9% cut in its workforce.
- This plan comes as it tries to refocus on its live strategy. A strategy that is already "off to a great start."
- The live strategy could lead Twitter to profitability. Should you buy TWTR stock now?
Twitter (NYSE:TWTR) has always been a platform that has been built around live events but it was never really treated as such. For example, in August of 2006, a small earthquake shook San Francisco and word quickly spread through Twitter - "an early 'ah-ha!' moment for users and company-watchers alike." But over the years, the company tried to redefine itself by going on a spree of acquisitions. Twitter acquired more than 50 companies since 2008 and some of these big budget acquisitions never saw the light of day. But it seems the company has realized that its efforts to expand its mission is not delivering the type of growth that investors and management had hoped for. Hence the change, and the big opportunity.
Now Twitter seems to be returning to its roots. Twitters initial popularity emerged from its ability to bring users together in real-time over shared interests. This is why I am optimistic that the new Twitter will prosper either as a standalone or part of a large company that can harness the synergies of merging with Twitter.
Also Read: Should You Buy TWTR Stock Post Q3 Earnings?
Looking back: The Biggest NFL/Twitter lesson
Earlier this year, the National Football League ("NFL") granted a contract to the beleaguered micro-blogging site with ~311% less MAUs than its biggest competitor - Facebook (NSDQ:FB). Well-capitalized companies such as Facebook, Amazon (NSDQ:AMZN) and Verizon (NYSE:VZ) were all competing for the deal, implying that if the NFL was looking for money and scale, they could have gone for Facebook. As a matter of fact, NFL spokesman Alex Riethmiller confirmed Brian's comments to NPR that Twitter's bid was, in fact, not the highest that the league received.
"We did not take the highest bidder on the table," said Brian Rolapp, the NFL's executive vice president of media, of the Twitter deal. "The platform is built around live events already. We want to see how they use the unique platform, and syndicated tweets all over the Internet is going to be interesting."
All these data points could only mean that the NFL was looking for something much more important than billions of MAUs or extra cash - they were looking for a company that is built for live events: live commentary, live conversations and live connections.
Looking forward: Points to consider
On October 27, Twitter acknowledged the initial successful results of its implementation of the live strategy. Jack Dorsey stated that the "live strategy is off to a great start." Twitter has seen strong audience and user engagement results from this new strategy. This strategy will work because as more sources of obtaining news emerge, the need for short, concise and engaging news like Twitter will continue to be more powerful. It will work because there is a niche market of "now" news. What is currently happening, on-going live discussions, and not news of yesterday. This is why the sometimes condemned decisions to keep the 140 characters becomes an advantage. When people are crowded with information, short, concise and to the point messages tend to work - the 140 characters.
Twitter's dominance in live news was verified when Google decided to partner with Twitter. The partnership meant that Google has access to the stream of tweets known as firehose. The firehouse sends out ~9,000 tweets per second into the ether of the internet. This means that tweets could be "Googled", giving Twitter a much broader audience that transcends beyond its Monthly Active Users (MAUs), enabling it to possibly generate some ad revenues from people who are not on Twitter or who would otherwise not be able to access tweets.
Also, Twitter is now planning to "de-prioritize certain initiatives and simplify" how they operate. "As part of this strategy, Twitter decided to reduce the size of the organization by 9%, mostly concentrated in sales, partnerships, and marketing. Because of its streaming initiatives mainly coming from the focus on their 'live strategy", Twitter has set a new goal of driving towards GAAP profitability in 2017.
In addition, the company reported that their "live video is driving solid engagement with light Twitter users." The company reported that "70% of the audience is less than 35 years old" among over 3 million live viewers of the debates. Giving the company the opportunity to monetize part of their non-core users. As a result, Twitter was able to see an "improvement in engagement" with their light users, having longer duration than medium and heavy users when engaged with the game.
Furthermore, Twitter saw "over 450 million tweeting presence during the broadcast window and that's up meaningfully from where they were without the video." The live strategy seems to be promising. Quoting Twitter CFO Anthony Noto:
"It terms of live revenue in the quarter, we had two NFL games in the quarter in Q3, so it's 20% of the overall package that we have. And so there was some revenue contribution, but it was small relative to the total revenue. And we launched the rest of our programming schedule on the back of that with much more of that being launched and monetized in Q4."
Q3 makes Twitter's Q4 results a bit more promising, something that investors should look forward to. (Also Read: An Opportunity 10X Bigger Than The Presidential Debates)
Google's decision to partner with Twitter, the NFL's decision to chose Twitter over rivals such as Facebook, Verizon and Amazon, and the "great start" to Twitter's live strategy, are all endorsements of Twitter's dominance in live events. A sign that the strategy is well-positioned to succeed. The need for live news (NFL games) or live conversations (U.S. Presidential debates) is getting more and more popular. Twitter has a strong brand recognition that has attracted a lot of loyal followers over the years. For example, even though Twitter's Monthly Active Users ("MAUs") have remained constant, its Daily Active Users ("DAUs") have been growing.
This 2% YoY surge every quarter in DAUs means that Twitter is growing engagement as users are staying longer on the platform. This increased user engagement increases the chances of users clicking on ads and increases the number of ads that Twitter can show to users. This focus on live events can be the catalyst the company needs to increase its ad revenues moving forward. Evaluating tech stocks? Check out Amigobulls' top tech stock picks, which have outperformed the NASDAQ by over 115%.