Twitter Inc: If Jack Dorsey Pulls This Off, TWTR Stock Could Surge

twtr stockTurnaround for TWTR Stock?

Since last May, Twitter Inc (NYSE:TWTR) stock has been traveling mostly downhill. There have been plenty of press releases that could turn into positive catalysts, but Twitter stock never really bounced back. Jack Dorsey, though, seems to be working on a plan to turn things around.

On Tuesday, the company announced through its official blog that it is increasing the maximum length of video tweets from 30 seconds to 140 seconds. (Source “New Ways to Tap into Video on Twitter,” Twitter Official Blog, June 21, 2016.)

There will also be a new user interface for video content. Users can tap on a video to open it up in “Watch Mode.” After watching the clip, users will be able to see recommendations for other video content.

Twitter is also making changes to “Vine”—the company’s short-form video-sharing service. Vine videos will still be six seconds long, but users will soon be able to post additional videos alongside their Vine.

In addition, for the first time, the company will share advertising revenue with Vine’s content creators.

So, that’s the news. Now, let’s look at how these changes could affect Twitter’s stock price.

At first glance, each of these changes doesn’t look like that much of a big deal on its own. But after putting them together, I see a decent chance of Twitter becoming a major player in video. This could help the company deal with one of its major challenges right now—user engagement.

Let’s be honest: people prefer watching videos as opposed to reading text. Part of the appeal of Twitter is that you don’t need to read too many words (although the company did momentarily expand its character limit to 10,000 before changing it back to 140 characters). Everything is as concise as it could be.

Under the same strategy, Vine turned out to be successful. The service has hundreds of millions of active users. Some of these six-second videos have gotten tens of millions of views.

Unlike text, users don’t typically mind a bit more content. Take a look at YouTube and you’ll get the idea. Some popular YouTubers post hour-long videos and still manage to amass a huge audience.

On Twitter, though, up until this point, uploaded videos were limited to 30 seconds. While the conciseness was great, there has been evidence that people don’t mind watching longer videos. By allowing users to upload longer videos, Twitter could effectively improve user engagement.

Also, many content creators today use Vine as a preview for their longer videos posted on YouTube. Soon, they will be able to post longer videos directly to Vine.

Users are already embracing video content on Twitter. The company said that year-to-date, video tweets have increased 50%. (Source: Ibid.)

Most of all, the strategy bodes well for advertising—Twitter’s main source of revenue. Video ads are far more lucrative than text and image ads for Twitter. At the same time, video ads are in line with native advertising because as you scroll down the Twitter feed, they look just like other content. If Twitter starts running pre-roll ads on some of its videos, it could be huge.

Of course, there is always the question of how a newcomer can challenge the incumbent in an established industry. The video segment today is dominated by YouTube. Does Twitter even have a chance to succeed in this business?

Yes. This is because of Twitter’s “newsy” feel. Sure, YouTube provides great entertainment, but when people are searching for the most recent information—whether it’s about a sporting event or product launch—Twitter is still the place to go. This should provide a solid audience base for Twitter’s video strategy.

The Bottom Line on TWTR Stock

At the end of the day, keep in mind that as a social media company, Twitter has fallen behind its competitors in terms of both userbase and revenue growth. The company even changed its app category from “Social Networking” to “News” to increase its visibility. That’s going to keep being a drag on Twitter’s stock price.

Still, with the video strategy in place, the company might have a chance. TWTR stock isn’t over just yet.