Why I'm Buying Shares Of The 'Other' Social Network
StreetAuthority Network
Social media came seemingly out of nowhere and took over our lives. And it's not just the ubiquitous -- some would even say obnoxious -- need to check your Twitter (Nasdaq: TWTR) feed or post on Facebook (Nasdaq: FB). The way we get our news and communicate with friends and family has changed forever.
Indeed, the public has adopted social media amazingly fast. It's hard to believe that just a decade or so ago, it was in its early stages. In fact, the first tweet was sent just 10 years ago on March 21, 2006, almost 130 years to the day after Alexander Graham Bell famously made the first telephone call in his Boston lab.
Twitter officially launched its service on July 15, 2006. It now has 313 million monthly active users (82% of whom are using mobile devices), supports more than 40 languages, and counts 1 billion monthly unique visits to websites with embedded tweets. It's hard to name a celebrity, politician, athlete, business or media outlet that doesn't use Twitter to varying degrees.
Twitter: A Primer For those of you not among those 300+ million active users, here's a primer: A tweet is a message written in 140 characters or less sent through the Twitter social network, accessible via a website, mobile device or even a text. In fact, it's the texting origins of Twitter that are responsible for the 140-character limit: back when it started in 2006, short message service, or SMS, was limited to 160 characters. With the service expansion beyond a text, this trademark length was kept constant. You can only post tweets if you are a registered user -- and registered Twitter users, just like unregistered users, can read tweets that somebody else posted.
The appeal of Twitter lies in its network: the reach, the speed, and the ease of use. Further, Twitter allows users to tweet images, and its simplicity has made it one of the most popular mobile applications ever and one of the most important social networks too.
Twitter's Upside Is Figuring Out Monetization But with all that going for it, the company has still failed to capitalize on its social media dominance. Even a cursory look at a chart of Twitter's stock price will tell you that something hasn't been quite right recently: From its post-IPO levels (not to mention its all-time highs of around $70 per share), the share price of TWTR dropped to as low as $14 this summer.
I believe this in itself presents an opportunity -- provided, of course, that Twitter can turn things around. It simply needs to find a way to monetize its many millions of active users. And if it can reaccelerate user growth, even better.
The company is taking steps to make that happen. Some are more technical in nature, designed to make user experience easier while preserving what makes the service unique. Also, in September, Twitter started streaming video applications for Apple (Nasdaq: AAPL) TV, Microsoft's (Nasdaq: MSFT) Xbox and Amazon (Nasdaq: AMZN) Fire TV. This should help Twitter promote its services beyond the existing user base -- and to further grow it. Latest quarter's 313 million active users only represented a 3% increase compared to the year-ago period.
Further, the more advertising revenue is generated, the better off Twitter is. This is another reason why its video efforts should be seen as a big step forward.
And come to think of it, this has been an exceptionally busy month for TWTR so far. Twitter premiered its live streaming of a National Football League game. Just like with viewing a tweet, you didn't need to have a Twitter account to watch, and the production received mostly rave reviews.
First announced in April, the deal for live streaming of 10 Thursday night NFL games was lauded as a great deal for Twitter as the social media company reportedly managed to snatch the 10-game package for $10 million, beating Verizon (NYSE: VZ) and Amazon (Nasdaq: AMZN). It has also been reported that Twitter didn't even need to outbid these heavyweights, as the NFL also saw the possibility of streaming via Twitter as a new way to reach audiences.
And Twitter now offers revenue sharing. In addition to sharing revenue with media companies that stream sports and other entertainment content through Twitter apps, it will now offer advertising revenue sharing with anybody who posts content (just like YouTube, only with a 70-30 share -- a better deal for content creators than YouTube's 55-45 scheme). We will have to see how these efforts pay off, but they are steps in the right direction.
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A Takeover Could Send Shares Soaring Not to be overlooked, of course, is the possibility of a take-over. One of Twitter's co-founders and a member of the board, Evan Williams, didn't rule out the possibility in a Bloomberg interview August 31. After a question about whether Twitter can remain independent, Williams said, "We're in a strong position now, and as a board member we have to consider the right options."
This wasn't the first time the subject was raised. The value of social media could be in the eye of the beholder, as was proven by the unexpected -- and huge -- announcement in mid-June that Microsoft intended to purchase LinkedIn (Nasdaq: LNKD), a professional social network. That acquisition valued LNKD at about 50 times future earnings; shares of TWTR trade at 38 times future earnings.
Buyout speculation aside, remember that any stock should be considered as an independent concern. In the case of Twitter, if it stays independent, the company will be OK. The steps Twitter has been taking lately should provide the foundation for stronger growth in the future. And finally, although cost-cutting and layoffs are possible, they might end up as important steps on the road to sustained profitability.
Twitter May Be Big, But It's A Game-Changer In terms of its size, Twitter is not a small company -- annual revenue reaches $2.5 billion, and its market cap approaches $13.5 billion. I'll admit, I usually don't focus on larger companies like this in my newsletter, but it's a true game-changer and trendsetter, and it belongs in my premium Game-Changing Stocks portfolio.
I should mention that this well-known brand is just one of many areas I cover in my newsletter, including exciting industries like cyber-security, data storage, the Internet of Things, the cloud, biotech, clean energy, self-driving cars, e-commerce and more. If you're interested in learning more about the other, lesser-known game-changers that have triple-digit potential, simply follow this link.
