The most valuable company to invest in the stock market is the one with the prospect of making a profit in the future. In this case, it does not matter whether this company is now profitable or not, because investors are always ahead of the curve. Such companies can be found among those who go to IPO and actively begin to develop their network or capture market share. However, there are companies that are discovering new sources of income, while they have been on the market for a long time and are known to every investor. Today we will talk about Twitter ( NYSE: TWTR ) and Twitter’s upside.
Twitter ad revenue
About 84% of Twitter’s revenue comes from advertising. In the second quarter, the results of which we will learn on July 23, these revenues may grow due to the boycott by advertisers of the social network Facebook ( NASDAQ: FB ). This will be a reason for short-term speculation , and at the moment the value of Twitter shares may rise. However, a long-term investment requires a more substantial reason to buy than a growing profit from competitors. And this occasion appeared.
Twitter posted an engineer vacancy
On July 8, Twitter posted a job posting to find an engineer to lead a team working on a new paid-subscription platform called Gryphon. No further information has been received from Twitter on this matter. Moreover, after some time, references to a paid subscription in the vacancy were removed. But this information was noticed and disseminated by the media, as a result, at the moment the value of Twitter shares rose by 11%.
Twitter revenue growth slows down
Now the number of new users for the company is growing much slower than it was 2-3 years ago, and along with them, the growth of income has slowed down. In the first quarter, revenue increased by just 2.6% over the previous year. If we pay attention to the dynamics of income growth in the first quarter since 2017, then we get the following figures. In Q1 2017, revenue amounted to USD 548 million, in Q1 2018 it increased to USD 665 million, an increase of about 21%. In the first quarter of 2019, the amount increased to USD 787 million, but the growth rate decreased to 18%. The company ended the first quarter of 2020 with revenue of USD 808 million, that is, revenue increased by 2.6%. These figures show that income growth is slowing down, which means it is necessary to look for new sources of profit, otherwise the company’s shares will become uninteresting to investors. The company does not pay dividends, so the main source of investors’ profit is the growth in the value of shares. And if there is no revenue growth potential for Twitter, then there is no point in buying stocks. They will either bargain on the spot, or gradually begin to decline. Thus, a paid subscription will allow the company to diversify its revenues, and in the future will increase them. Since the company did not provide information about a paid subscription, you will have to think about what the social network will offer to pay money for.
Several years ago, Twitter already polled its users for a paid subscription, in which they could receive alerts about important news and additional information about their followers’ tweets. That is, this topic is not new, and the company has long considered the possibility of introducing a subscription. This survey focused on the TweetDesk application, which the company has owned since 2011, and is intended for more advanced users. This application allows you to manage multiple accounts at once, make deferred posts, view full subscriber profiles and much more. Twitter calls the app the most powerful real-time tracking, organizing and engaging tool. It is possible that the company may supplement TweetDesk with new services, including paid content from news agencies, which will allow professionals in the media market to quickly learn and process important information about what is happening in their country or the world. In this case, the target audience will be users of a professional-commercial environment who can afford to pay even an expensive subscription. Thus, Twitter can enter into partnerships with news agencies that will post information on the social network, and access to it will be open by subscription. In this case, the company will increase its competitiveness over Facebook and Apple News + ( NASDAQ: AAPL ).
Paid subscription to Twitter accounts
The second way to make a profit is to allow popular account holders to offer paid subscriptions for themselves. Amazon practices this in the video streaming service Twitch. This approach is beneficial for owners of popular accounts, who can also diversify their income.
Cancellation of Subscription Ads
The third option is to cancel ads from the user who paid for the subscription. If the company goes this way, then it is very difficult to calculate the prospect of receiving income, it is possible that in this case the revenue may even decrease, the reason is the cost of the subscription. In 2018, the Washington Post polled users for paid subscriptions from Twitter’s competitor Facebook. As a result, 50% of respondents said they would not use a paid subscription, only 16% were willing to pay 7 USD, 11% agreed to 1 USD. Citigroup analyst Jason Bazinet estimates that Twitter gets $ 50 per year in ad revenue per user in the US and $ 20 from foreigners. It turns out that in order to cancel ads for US users and not lose income, a subscription must cost at least 50 USD per year. A survey is a poll, but as practice shows, many are ready to put up with advertising, since they are already used to it.
Whichever way the company chooses, in any case, it needs to offer users a service for which they are willing to pay. That being said, Twitter’s ad revenue shouldn’t be affected. The reaction of investors to the published vacancy was positive. This is confirmed not only by the growth in the value of shares on the day of publication of the vacancy, but also by their subsequent growth even after the news of the massive hacking of the accounts of famous people.
There is speculation related to technical analysis that indicates a possible rise in the value of Twitter shares in the near future. But technical analysis is based only on assessing the probability of price movement in one of the directions. In this case, expectations are a stronger growth factor. The stock graph shows investors’ attitudes towards the possible introduction of a paid subscription on the social network Twitter, and at the moment everything indicates that they are optimistic about the future and are ready to buy stocks. If the subscription is introduced, then perhaps this will take place no earlier than the beginning of 2021. Whether to join this movement or not is a purely personal matter.