- Twitter doesn't need massive growth like many analysts believe. The platform can also sell ads through other applications on mobile devices
- Twitter's partnership with Google will definitely bring more traffic to the platform. Some of this traffic will turn into consistent users
- Twitter's self service ad platform is now available in over 200 countries and 15 languages. Revenue growth will continue to be the company's strongest metric
- Twitter badly needs leadership. Management turmoil over the last 12 months has definitely played its part in vacating employees. Strong leadership would change this instantly.
Twitter (NYSE:TWTR) came out with a very disapointing earning report with respect to user growth but revenue came in at $502 million (and adjusted earnings of $0.07 per share) which was 60% higher than the corresponding quarter in 2014. However, the user growth came in very sluggish with the company only gaining only 2 million users since the first quarter of this year.
Its competitor Facebook (NASDAQ:FB) is flying high with consistent user growth and I just feel that too many analysts have turned bearish on Twitter because of the company's sluggish user growth. Furthermore Twitter's management came out in its latest conference call and stated that user growth is likely to underperform over the next 12 months. This led to many analysts downgrading their Twitter target prices, which caused a nasty sell off. Twitter stock is now trading at $27 a share which is disappointing for long term investors who are heavily underwater on their positions. However I feel the stock will bounce off its lows very shortly due to many changes taking place within the company.
Firstly, the company appears to be concentrating on its strengths which is definitely revenue growth. Up to now, the platform has been available to advertisers in 33 countries but recently the tech company announced that now the self service ad platform would be available in over 200 countries and 15 languages. This should definitely bring in more advertisers over time and more users along with it. The question remains "Will Twitter be able to reach mass market with its platform?" That question remains to be seen but I believe this company will still grow because its "ad revenue per user" continues to grow over time. Furthermore managment feels that there is more scope for growth here because it can decrease the tweet to ad ratio. It must be careful here though as having an ad every 10 or so tweets could interfere with user engagement.
However I don't see video ads having the same saturation within Twitter's platform. Why? Because Twitter announced recently that it is now selling auto play video ads inside of other applications through its MoPub ad network. This is hugely important as Twitter bears have been saying that stagnant user growth would eventually mean that twitter wouldn't be able to take on more advertisers en mass. Therefore selling ads on other apps gives Twitter more real-estate to increase revenues. Furthermore, because Twitter already knows what other apps users have on their phones, the ads can be tailored to blend in with the users experience. This move gives plenty of scope for twitter to increase its 100,000+ number of advertisers currently advertising on the platform.
Secondly, I expect Twitter's collaboration with Google to gain traction in the months to come, especially now, as desktop real time tweets only became part of the partnership a couple of weeks ago. The collaboration (in which Google would show real time tweets in mobile and search results) was launced back in May but has updated since and the results look encouraging. What will this do for Twitter? Well, it should bring far more traffic onto its platform especially if we get an international roll-out of this initiative. Traffic should increase Twitter's user-base which is the ultimate goal of this exercise.
The reason why I see promise in the above mentioned collaboration is because Twitter receives more than 500 million+ unique visitors every month but more than 150 million dont have accounts. These are known as logged out users and it is a metric that is really frustrating Twitter. When you look at Facebook for example, it is impossible to use the platform unless you are logged in. Many analysts state that Twiiter's platform is too complex and needs to be simplified in order to get the visitors to open accounts. The problem I see is engagement but more plans are in the works to improve user engagement so users will hopefully feel compelled to sign up and participate.
Project Lightning, which will be launched at the back end of this year, has the potential to increase user engagement in a meaningful way. This project will enable users to view pictures and videos of events as they happen which should make Twitter stand out as the undisputed largest real-time social network. What is beneficial here is that logged out users will still be able to keep up with aspects of a live event or a breaking news situation. If Twitter can become the worldwide hub or reference for live events, then traffic levels will go much higher than 500 million unique visitors per month. It stands to reason that the more traffic this site gets, the more users it will attain over time. I think many analysts who have become bearish on Twitter stock are missing this. The excellent revenue growth Twitter has had is primarily coming from two sources.
- Users who are on the platform are becoming more engaged. The more engaged a user is, the more ads a platform can display.
- More and more traffic coming to the platform. Twitter can still make money from its logged out users even if they offer a lower dollar value to the company. Twitter believes that active logged in users are worth $4+ per year on average.
Finally Twitter should be announcing its new CEO any day now which is something shareholders badly need. Management turmoil in Twitter over the last 12 months has definitely contributed to some notable employee departures to companies such as Lyft and Uber. This company badly needs leadership and I was comforted to hear Jack Dorsey say that recent user growth was totally unacceptable. Whether he takes up the job full time remains to be seen. However, what the company needs is a strong leader with a detailed plan. New leadersip could do wonders for the company's trajectory. We have already seen this with Mcdonalds (with a new CEO in charge this year) as the fast food giant is predicted to return to full growth in Q3 of this year. Twitter can do the same. All it needs is to win back the trust of shareholders. Personally I think it will.