TWTR Stock: Does Twitter Inc Still Have a Chance?
When a company’s stock price takes a 60% haircut, you know things are bad. So it’s no surprise that Twitter Inc (NYSE:TWTR) stock looks down-and-out at the moment. To make matters worse, the company is reportedly facing a talent drain and has to offer better compensation packages to stop it. Does the struggling social media company still have a chance? (Source: “Twitter Bets on Payouts to Rein in Talent Flight,” The Wall Street Journal, March 10, 2016.)
The answer is yes, with one main reason—monetization.
TWTR Stock: Great Monetization, Troubled User Growth
For social media companies to make money, advertising is key. And Twitter is no exception. In the most recent quarter, advertising revenue accounted for more than 90% of the company’s total revenue. (Source: “Twitter Q4 and Fiscal Year 2015 Shareholder Letter,” Twitter Inc, February 10, 2016.)
The neat part is that both advertisers and consumers seem to like the ads on Twitter. For businesses, Twitter has become a new channel for customer service. A McKinsey & Company study suggested that the volume of customer service conducted on Twitter has more than doubled in the last two years.
For consumers, new features on Twitter helped to increase ad engagements by 153% year-over-year in the most recent quarter. For instance, the company’s introduction of auto-play video in the third quarter of 2015 made it much easier for users to engage with an ad. Overall, ad load on Twitter was higher both year-over-year and quarter-over-quarter.
As an advertising platform, Twitter is winning both advertisers and consumers. And that’s a good thing because it means monetization is improving. In the most recent quarter, advertising revenue surged 48% year-over-year to $647 million.
Since advertising has been the company’s biggest revenue source, Twitter’s total revenue also surged 48% to $710 million in the fourth quarter of 2015.
While monetization is doing great, Twitter still has a big problem to solve—user growth. By the end of 2015, Twitter had 320 million monthly active users (MAUs). Facebook Inc (NASDAQ:FB), on the other hand, is nearly five-times bigger on this metric—it has 1.59 billion MAUs. (Source: “Facebook Reports Fourth Quarter and Full Year 2015 Results,” Facebook Inc, January 27, 2016; http://investor.fb.com/releasedetail.cfm?ReleaseID=952040.)
Due to Twitter’s much smaller size, you’d think that it could grow faster. But that’s not really the case. While Facebook grew its MAUs by 14% year-over-year in the most recent quarter, Twitter only managed to grow nine percent.
Things get worse when you look at the quarter-over-quarter figures. In the fourth quarter of 2015, Twitter had 320 million total MAUs, the same as in the previous quarter. The lack of sequential growth has become a major concern for Twitter stock investors.
The Bottom Line on TWTR Stock
So, monetization has been going great at Twitter, but the company still has serious growth issues to address. Until user growth picks up again, I would probably be standing on the sidelines when it comes to TWTR stock.