Thursday, 13 November 2014

Twitter analyst day

Big events around the world happen on Twitter (TWTR). It is the only public, conversational and real time social network. But unlike other social networks it is confusing to use. Everyone has figured out that Facebook is for keeping in touch with friends and Linkedin for work colleagues but TWTR is less clear. Its sort of like walking into a bar or party where there are lots of interesting people but you don't stay too long because you don't really know anyone or who to talk to. It hasn't been clear to investors either. Even TWTR admits most users don't know why or how to use it hence the analyst day and a promise of new features.

Twitter is public and real time
TWTR is different from other social networks by being public and real time. It is the best way to share news/updates with the world. A tweet from Ellen DeGeneres received 3.4 million retweets but it went viral on other sites around the world that picked up on the tweet (see below.) This ability to go viral has made it very valuable for advertisers and users. It increases the effectiveness of events and TV advertising as users tweet and use their mobile while watching key shows/events encouraging other users to engage and tune in. This is also the problem as everyone is aware of TWTR but users tend to engage with events and then drop off.


Source: Twitter analyst day


Analyst day promises and changes
TWTR announced a lot of upcoming product changes mostly centered around making it easier to use when you first sign up. Apparently 125 million visitors go to TWTR's home page each month and decide not to sign up or login. TWTR will provide new users with an instant timeline to show users whats happening on the site so they don't have to search and figure out who to follow. Provide updates that show important tweets that you may have missed since you last logged in. TWTR will also introduce the ability to share and discuss tweets privately through direct messages. For advertisers they will make the process simpler by adding the ability to turn tweets into ads with just a few clicks.

Source: Twitter analyst day

They also shared lots of good stats
  • Mobile user growth 3x internet user growth.
  • 500 million tweets per day, no surprise that the majority are tech related with 554 million technology related tweets a month.
  • The most concerning information (see below) is the number of tweets per day has plateaued over the past 13 months. Its too early to see this happening.
  • 83% of the Fortune 500, 75% of NFL and NBA players have TWTR accounts.
  • Ad load of 1.3% was interesting given Facebook shows ads around 5% of the time. If they increased ad loads to similar rates they could increase revenues from $1.4 billion to $5 billion.
  • TWTRs annualised average revenue per user is $5.09


Source: Twitter analyst day


TWTR also shared a hypothetical chart of potential revenue if everything went well. They point out it is only hypothetical but it is big target for them if they can produce similar revenue as Google, Amazon and Ebay.

Source: Twitter analyst day


Tweeting a verb
TWTR has a few things going for it as it has 90% global brand awareness. Tweeting has become a verb just like Kleenex or Xerox brands are valuable to consumers. Social networks are also typically great businesses because it is user generated content. The content is exclusive, unique and it's free. When your users work for you for free its a great business.

TWTR said all the right things with a roadmap for product changes and a hypothetical goal for producing as much revenue as Google, Ebay and Amazon but the hard part is executing. With the number of tweets flat over the last 13 months this presentation creates a risk of over promising and under delivering. I personally think these changes will improve their service but trying to follow in the footsteps of Google, Amazon and Ebay with revenue targets will only set themselves up for future disappointment.

Jason


Disclosure: Decisive does not have a position in Twitter (TWTR) stock.


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