Twitter Looking More Attractive After the Dip

Selling off from $77 — Twitter is an internet stock to put on the watchlist.

Twitter is a unique asset that is enriching and powerful, especially for the long tail of niche topics.

If I had to point to one area that will accrue a meaningful impact on people’s experience, and business as a whole, this would be it.

Topics and interests are good for businesses on Twitter too, especially for local small businesses, as they contribute stronger signals around intent, and Twitter profits by serving relevant ads, which will ultimately lead to a transaction like a donation, subscription, or purchase.

These ads that are distributed and embed around the tweets are called Twitter’s Mobile App Promotion (MAP) business.

This division was up more than 50% year over year revenue growth in the fourth quarter of 2020 thanks to the public health situation making Twitter more relevant than ever.

Twitter is taking steps to make the platform more attractive now. For instance, take audio rooms, which they call Spaces, and long-form newsletters, made possible by the acquisition of Revue.

It’s easy to imagine starting with a tweet, moving a conversation to real-time audio, and recapping the conversation with long-form text.

It’s this in-between interaction that will prove to be powerful. The same is true for revenue-generating products, as more accessible advertising models will encourage the use of commerce tools and loop back into more advertising.

On the technical side of it, Twitter simply got ahead of itself on the stock chart but cemented its broad strength with an emphatic beat of total revenue reaching $1.04 billion, up 28% year-over-year.

Total ads revenue grew 32% year-over-year, driven by strong brand advertising in March and accelerating year-over-year growth in MAP revenue.

Interestingly enough, topics like sports betting, crypto, and personal investing gained traction in an accelerated way, and these MAP advertisers, who advertise into those areas benefit from a surge in app downloads for crypto or investing or betting.

These specific categories received 10X higher spend in Q1 relative to what they spent last year, demonstrating how Twitter is cleaning up from strong secular trends and with an enormous growing audience.

This active and pertinent conversation around the topic simply allows Twitter to turn on the cash spigots and this ad format delivers relevant ads.

Strength in these MAP advertisers means crypto ads won’t be going away anytime soon and it appears as if these topics have become a bigger conversation in everyday American life among consumers perhaps than they were in years past because the price of bitcoin is at an all-time high.

Also, legal betting is coming to the leagues in the United States, and mainstreaming will cause full-scale adoption, meaning the betting tweets are about to snowball.

Expect a lot more sports betting ads along with your garden variety crypto app download ads on Twitter.  

I am optimistic that these are secular trends that can continue for a long time especially when you consider the Millennials' stranglehold on American demographics.

This pivot is also indicative of Twitter’s ability to deliver for advertisers at the right moment aligning the right conversation on Twitter.

Twitter’s tough comparable data to last pandemic season made a selloff in shares inevitable — Q2 2021 metrics will perform poorly against Q2 2020’s.

Management had no choice but to guide down and expect Monetizable Daily Active User (mDAU) growth rates to be “in the low-double digits on a year-over-year basis in Q2, Q3, and Q4, with the low point likely in Q2.”

A period of consolidation is upon us in Twitter, and they will be retooling the wagon.

Another headwind to note that along with Facebook, Twitter has been actively preparing for the changes that Apple just released as part of iOS 14.5 update.

Twitter’s outlook for Q2 and 2021 assumes a “modest impact from the rollout of changes” associated with iOS 14.5 across owned and operated ads.

The covid surge added about 5 million mDAUs in the U.S. and Europe or North America and Europe, to 38 million from 33 million.

The answer is that I do believe that Twitter will retain the cohort that entered with Covid even if Covid will end.

They will stick with the platform because the use case for it enriches their business, personal life, and keeps their pulse on the on-goings in the world and the U.S.

That is very powerful.  

Losing this group would mean another leg down for the stock into the low 40s, which would be a no-brainer buy.

What is Twitter’s short-term roadmap?

They plan to double development velocity by the end of 2023, resulting in doubling the number of features per employee that directly drives either mDAU or revenue.

Second, they have a goal of at least 315 million mDAU in the fourth quarter of 2023, which requires continued compounding growth at about 20% per year from the base of 152 million mDAU reported in the fourth quarter of 2019.

Lastly, Twitter’s goal is to more than double total annual revenue to over $7.5 billion in 2023.

This requires Twitter to gain market share with performance ads, grow brand advertising, and expand products to small and medium-sized businesses.

If the investors sniff out they are on the right track to achieve these three initiatives, I do believe Twitter stock will be well over the last peak of $77 in 2022.

Expect Twitter’s shares to appreciate into the year-end.

It’s right to consider a period of consolidation as a reversion to the mean. This was inevitable after the opportunistic covid surge, but the handoff back to 20% growth is not as easy to communicate as it seems.

Twitter is still a great stock to get into if it drops to the $40-$50 range.