Since 2013, Twitter (TWTR) has struggled to find its feet both as a public company and as a modern social media platform. In an age where video-based platforms like TikTok and Instagram dominates, a brand new overhaul of Twitter’s monetization strategies may bring the bulls back to TWTR.
California-based social network, Twitter, is a micro-blogging platform that connects users to a network of people, news, opinions and content. While the social media landscape is becoming increasingly congested, Twitter’s unique selling point is the limitations the platform places on the content its users create. It limits posts to just 280 characters.
Although Twitter boasts of almost 400 million active users, newer networks like TikTok and Instagram have overtaken the platform by some margin. This indicates that the social media site has fallen in favor over recent years.
The battle for social media supremacy has led to a lengthy period of underperformance for Twitter’s stock. It sank to a value of just $14 in 2017. However, the Covid-19 pandemic helped spark a boom period for the stock. It climbed over 233% within a year and hit an unprecedented high of $77.06. Today, with a price of $61.20 at the time of writing, and a market cap of $49.27 billion, there may be room for Twitter to recapture its early 2021 highs.
The Lure of Monetization
Nasdaq-listed online brokerage firm, Freedom Holding Corp. (FRHC) has recently highlighted Twitter’s efforts to improve the way influential users are remunerated for their content as a potential buy opportunity for the company.
Twitter has had difficulty creating competitive monetization methods for users in the past, but it recently started offering new additions like the Super Follows function, which became available to users in September 2021. The function can be utilized by people with over 10,000 subscribers and at least 25 posts during a month. The new feature allows users to charge followers to access parts of their content. There are options to charge between $2.99 and $9.99 for the luxury, leveraging an operating model similar to that of Patreon.
In May 2021, Twitter launched Twitter Space, where users with an audience of over 600 subscribers have the ability to set up voice chats with users, similar to what Clubhouse offers. Twitter is also testing a Space add-on called ‘Ticketed Spaces,’ which opens the door to users charging their followers to listen in on the live audio conversations they’re having on the platform. At present, ticket prices can be set between $1 and $999, and users can access 97% of their earnings after paying the standard commissions to Apple and Google for in-app purchases.
These are just two new features out of the many that Twitter introduced in 2021 to make the platform more influencer-friendly. As a micro-blogging platform, Twitter’s operating model is still among the market leaders for users who want to access news from multiple sources and various industry insights. This can provide influential experts in niche concentrations with a significant financial opportunity.
It’s also worth noting that Twitter’s financial performance in 2021 has been strong too, with revenues increasing by 49.3% to $2.23 billion. The company has also boosted its daily active users by some 11%, according to indicators.
The Bearish Perspective
Even though the company is making efforts to deliver growth through a measured monetization strategy, there are still plenty of gloomy investor outlooks regarding the stock. Writing for Nasdaq, Thomas Neil claims that “there’s no guarantee” that Twitter’s recent financial overperformance will continue in the quarters ahead.
“With its forward P/E, or price-to-earnings ratio of 63.99x, any sort of disappointment could result in a big move lower,” Niel noted. “That is, if investors decide to reassess its valuation.”
Niel also highlights that it’s still too early to know whether Twitter’s monetization strategy will work out for the company. This means that any bullish sentiment being factored into Twitter’s price is largely speculative and will depend on whether the social network’s efforts actually resonate with its users.
Maxim Manturov, head of investment research at Freedom Finance Europe notes: “At the end of July, Twitter presented good financial results for Q2 2021. During the year, the company increased its active audience: the DAU (Daily Active Users) indicator increased by 11%, reaching 206 million users. In the first half of 2021, Twitter’s revenues increased by 49.3% over the same period last year, reaching $2.23 billion. The total number of advertising integrations increased by 32%, mainly due to audience growth and an overall increase in demand for advertising.
CPE (Cost per engagement) increased by 42%, largely due to higher comparable prices across most advertising formats. The company reported an operating profit of $82.4m in the first half of the year, compared to a loss of $281.3m a year earlier. The company’s operating margin stood at 3.7%. Net income for the first six months of 2021 reached $133.6m against a $1.386bn loss. Twitter has a low debt load of $5.2bn and has liquid assets of $8.6bn. Adjusted Free Cash Flow is at a stable level and reached $316.6m for the first half of 2021.
At the moment, by multiples, Twitter is trading expensive relative to its closest competitors: EV/S – 10.4x, EV/EBITDA – 32.1x, PE – 129.0x, Forward PE – 51.2x, P/FCF – 177x.”
There’s still plenty of optimism for Twitter among market commentators. Zacks Equity Research has labelled the company a ‘top pick for growth investors’ with a designated Growth Style Score of B, with year-over-year earnings growth of 201.2% earmarked for the current fiscal year.
Additionally, the company could be a top pick for growth investors. TWTR has a Growth Style Score of B, forecasting year-over-year earnings growth of 201.2% for the current fiscal year.
Although Twitter may represent a risky investment, the social network has been in operations for over 15 years. Having been in the social media game for so long, it may be worth closely following Twitter’s latest push towards monetization. If it successfully entices influencers back to the platform, we could see a triumphant return to prominence for one of the world’s best known social platforms.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
www.nasdaq.com