Twitter Leverages MoPub To Boost Mobile Ad-Revenue!

  • Twitter has struck a $230 million deal with ad company Omnicom.
  • The deal leverages Twitter's $350 million acquisition MoPub.
  • Twitter remains expensive given the long term risks and current valuations.

Twitter Leverages MoPub To Boost Mobile Ad-Revenue

Close on the heels of Facebook’s (NASDAQ:FB) deal with advertising giant Publicis Group, Twitter (NYSE:TWTR) has entered into a similar deal with Omnicom Group’s (NYSE:OMC)  media services division. The mobile focused deal is worth about $230 million, spread over the coming 2 years, and is of special significance to Twitter. We see why!

The past couple of months have seen big ad companies entrenching themselves deeper into social media platforms. Facebook’s $500 million deal with Publicis was preceded in March by a similar deal between Omnicom and Facebook’s Instagram worth $100 million over 1 year.

What’s interesting is that in April 2013, Twitter signed a 2 year deal reportedly worth $200 million with Starcom MediaVest Group, a Publicis group company. Not surprisingly, both ad companies in question, Publicis and Omnicom have thereby struck deals with both social media platforms. In monetary terms however, both of Twitter’s deals pit the microblogging platform against Instagram which has about 200 million users, rather than its original rival, Facebook. Publicis and Omnicom were due to merge and the move was called off less than a month ago.

Highlights of the Twitter – Omnicom Deal

Twitter is leveraging MoPub, a mobile ad exchange it acquired for $350 million worth of stock, to facilitate automated buying and selling of ad-space. Though Twitter has struck deals with agencies in the past, this is the first such deal to be struck involving MoPub.

Further, MoPub has so far been selling ad-space on its own network of ad-hosting platforms, which excludes Twitter. Now, Twitter plans to open up its own ad-space inventory to MoPub, and Omnicom might be the first to gain access to the same.

Omnicom’s ad buying unit, Accuen will be integrated with MoPub to facilitate transactions. Further, Omnicom will also reserve the right to a first look at Twitter’s new advertising opportunities as and when they are developed by the latter. The fact that synergies between Twitter and MoPub are starting to show is a positive and augurs well for the combined entity.

Twitter generates 80% of its revenue on mobile devices, and the recent deal should further aid mobile revenue growth. Twitter’s strong position in terms of mobile monetization is advantageous given that the ad-spends on mobile platforms will continue to grow in the years to come.

Twitter’s earns about 10% of its revenue from data licensing. Apart from gaining access to Twitter’s active user base itself, Omnicom could benefit from the data that Twitter has about its users, a tool it could leverage to improve ad-targeting. In June 2013, Twitter struck a deal with Omnicom rival WPP to allow it access to its data to facilitate enhanced ad-targeting.

The development is a definite positive for Twitter. However, a representative of Omnicom did mention that some of the company’s clients have been major advertising partners of Twitter’s in the past as well. So, one would have to wait to see how much of an overlap there is in terms of clients and how much incremental revenue the deal will add to Twitter’s kitty.

Twitter Valuation

Undoubtedly, this deal will boost Twitter’s user monetization, though it’s tough to predict the degree of the same. However, user monetization has been its strength, and has driven revenue over the last few quarters. What has worried investors has been the lackluster user growth at Twitter, and only time will tell if those concerns can be put away.

In Millions

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

MAU Growth % QoQ

18%

9%

11%

11%

10%

7%

6%

4%

6%

MAU added per quarter

21

13

16

18

19

14

14

9

14

At $31.5 a share, Twitter currently trades at a Price/Sales multiple of 23.2. We think Twitter is overvalued, especially in the light of long term risks over its growth. We found Twitter to be expensive even at lower prices in our detailed Twitter valuation which took into consideration price sales ratio and price earnings ratio, and assuming 20% profitability, which it won’t be reaching anytime soon. We have a sell rating on Twitter. View our Twitter stock analysis here.

To see Twitter’s latest stock price movement, click here (NYSE:TWTR)

Show Full Article
5 2
Is this article helpful ?    


Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

show more

Comments on this article and TWTR stock

Do share this awesome post