Would You Invest In Twitter?

September 23, 2013 Paul Van Winssen

Twitter has decided to go public. I won’t say finally, as it wasn’t nearly the drawn out process that the lead up to Facebook’s IPO was, however it has been speculated about for a while now.  The announcement comes on the heels of the acquisition of mobile advertising startup MoPub. The acquisition is a great primer for the IPO announcement as it highlights Twitter’s focus on mobile revenue. But despite the strategic timing, the question remains if Twitter is a company worth investing in.

With Facebook and LinkedIn already public, YouTube a property of Google, and Pinterest still in the very early stages, this announcement was the next big hat that had to drop in the business of social media. During Facebook’s IPO almost a year and a half ago I was a big believer in Facebook as a company and that they were an investment I would make (and still would today). While they have had a pretty bumpy road since going public, they’ve made great strides as a company and are now trading comfortably above their IPO price. But what (if anything) does Facebook’s early stretch as a public company tell us about the future success of Twitter?

Facebook Paved The Way

I mention the Facebook IPO because the rough road that FB took has given Twitter a lot to learn from. The most important lesson is that Facebook waited too long before going public, a mistake CEO Mark Zuckerberg admitted at Tech Crunch Disrupt. This matters because Twitter is at a different revenue stage than Facebook was at the time of filing. While Facebook’s revenue was at almost $4 Billion pre-IPO (where Twitter’s is undisclosed as of yet, but estimated at around $500 Million) their revenue growth had begun to taper off. The fact that Twitter’s revenue growth is still accelerating (and probably will be when they do their IPO) is a very positive sign for early investors.

Think Long-Term

Now learning from Facebook’s IPO may help Twitter succeed in the short-term, but the bigger question remains whether Twitter is a company built for the long haul. Twitter will probably IPO at a valuation of somewhere between $10-20 Billion. If you think down the road they’re a $100 Billion company, then investing is definitely worth your while (for reference Facebook’s current market cap is around $108 Billion, Google’s is just under $300 Billion). By saying you think Twitter can become 10 times bigger than they are today, you’re confident they will be able to do three things effectively moving forward: Increase their monthly active user base of approximately 200 Million, keep that expanding user base engaged with their products, and consistently improve the ability to monetize their users.

From a business perspective, Twitter’s ability to leverage their data and users to create revenue is the most important factor into whether or not they’ll be successful. This primarily means advertising revenue, and there are numerous reasons to be optimistic about Twitter’s future.

1. Focus on Mobile

Twitter is a product that unlike Facebook has been crafted for mobile success. Where Facebook has had to translate its booming desktop business to mobile, the nature of Twitter’s short-form content is much better suited for mobile user experience. The entirety of Twitter’s ad revenue also comes from native advertising, which is the only form of advertising proven to be really effective on mobile so far. As mobile usage continues to expand in prominence over the desktop, Twitter’s revenue model maintains its relevance where other online properties have had to adjust.

2. Cross-Media Potential

Twitter has already become very important as a medium of communication through its focus on real-time conversation. This makes Twitter an outlet for breaking news and stories that supersedes some of the abilities of traditional media. This has established Twitter as a hub for conversation surrounding live events. Because of all the conversation, Twitter has become a companion to many other traditional forms of media. The biggest example of this is television, where Twitter is looking to take a piece of the $60 Billion annual TV ad market. Here Twitter is a companion medium to television, where advertisers can serve promoted content to its user base timed to match their television ads, the shows individuals are watching, or to insert themselves into the conversation of the moment. The ability to connect advertiser campaigns to users across media forms is a great advantage to Twitter’s revenue potential in an increasingly multi-screen world.

3. Additional Products

With the IPO and the sale of shares will come an influx of cash for Twitter to play around with. This provides resources to invest not just in Twitter’s current products but in adjacent areas as well. Twitter has already come out with video-sharing app, Vine, and music discovery service, Twitter music. Tech success stories Google and Amazon have made themselves into economic machines by expanding outside of their initial product line to create supplementary revenue streams. In 2012, 84% of Facebook’s revenue came from advertising. Advertising will inevitably be a pillar for Twitter, however they’re going to have to show they can innovate in other ways if they want to be around for the long haul.

Summary

Ultimately, if you think Twitter could become a $100 Billion company, then they’re worth the investment. The fact that they are still in the early stages of the revenue growth curve displays their potential, and there are many reasons to be optimistic about their success. What do you think? When shares in Twitter become available to the public, will you invest?

About the Author

Paul is a social media marketer and startup enthusiast based in Toronto, Canada. He likes to traverse both the tech startup and marketing agency worlds (and everything in between). Paul divides his time equally between tech events and Blue Jays games.

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