Twitter Stock Could Soar on a Reddit Acquisition
Microblogging social media company, Twitter, Inc. (NYSE:TWTR) has been getting badly hammered on the stock market for its meager user growth and lower-than-expected guidance for the future quarter. TWTR stock has fallen over 19% year-to-date and has investors worried whether Twitter CEO, Jack Dorsey, would be able to turn it around under his dual CEO-ship of both Twitter and his brainchild Square (which is also expected to go for an initial public offering (IPO) soon). I believe Twitter may have a way out of these troubles; in buying Reddit.
Would Buying Reddit Be Good for Twitter Stock?
The repeatedly-cited monthly active user (MAU) growth problem is weighing heavily on TWTR stock. Because of the nature of its news-like platform, Twitter has been sluggish at pulling in traffic. By the end of the latest quarter, Twitter’s monthly active users (MUAs) stood at around 320 million. Compare this to Facebook, Inc.’s (NASDAQ:FB) over 1.55 billion.
Twitter’s other two acquisitions—Periscope and Vine—haven’t been as great as expected. Periscope faces competition from the likes of Snapchat, while Vine faces competition from Instagram and its sister app, Boomerang.
But there’s one other way the company can bolster its position in the social media industry. And that is by consolidating its traffic with a similar platform. And what better option is there than Reddit?
Compared to Facebook, which is the second top visited web site in the U.S. after Google, Twitter currently ranks at the eighth spot. Closely following it is Reddit at the ninth spot. As one of the most popular discussion platforms for news and entertainment after Twitter, Reddit’s growing influence, not just within the U.S. but also internationally, cannot be underestimated. Reddit presently receives 45% of its traffic from outside of the U.S. which goes to show its rising dominance as a news and video sharing social media platform, internationally.
As of late, Reddit’s monthly active users (MAUs) stand at over 200 million, which is an attractive number for a privately held company. Should Twitter make a move to acquire it, we could see a consolidation of MAUs and an integration of one platform within the other. The acquisition could help Twitter pull ad revenue from a huge platform that largely remains under-monetized.
Reddit’s main source of ad revenue is its desktop web site, while the Reddit app still holds great potential to be monetized. Last year alone, the company generated over $8.3 million in ad revenue, which is a great figure for a poorly monetized platform. In addition to ads, another mini source of revenue is Reddit Gold, whereby users subscribe to some extra features for a monthly fee of $3.99.
The web site’s popularity amongst celebrities and businesses alike to reach out to people has boosted its traffic by many folds over the years. Page views have increased from 37 billion in 2012 to 56 billion in 2013, and 71 billion page views in 2014. Likewise, Reddit has helped small and medium-sized businesses attract visitors to their web sites. The Reddit effect, or the “Slashdot” effect, has helped many small businesses pull in massive traffic just because they got discussed on Reddit.
Reddit’s “Ask Me Anything” (AMA) and IAmA threads have been particularly popular amongst celebrities. Big names like President Barack Obama, Democratic Presidential Candidate Bernie Sanders, Microsoft CEO Bill Gates, and Tesla CEO Elon Musk are among the many who have opened themselves to public interviews on Reddit.
Reddit has also recently ventured into a Netflix-like video streaming service. Should Twitter take Reddit under its umbrella, use the video effect to monetize it and create an interconnected ecosystem of news and entertainment, the move could help Twitter gain a strong ground in the news content sharing industry.
The Bottom Line on TWTR Stock
Will Twitter stay put through some very troubled times? Unlike TWTR stock bears, I still see light at the end of the tunnel. The company has been through many ups and downs. But the recent moves at Twitter HQ, like the introduction of Promoted Moments and video advertising, are going to prove a boon for the company in meeting its targets. However, the company might be able to reach their way faster should it consider expanding through external avenues like the suggested Reddit acquisition.
In a nutshell, I’m hopeful on TWTR stock.