Investment Thesis Twitter by Augustine Fou April 2014

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Our thesis remains cautiously optimistic, but Q1 2014 data shows continued and confirmed decline in key user metrics --such as timeline views -- which is directly correlated to revenues.

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Investment Thesis Twitter by Augustine Fou April 2014

  1. 1. Augustine Fou- 1 - Dr. Augustine Fou http://linkd.in/augustinefou April 2014 Investment Thesis: Twitter (TWTR) Q1 2014
  2. 2. Augustine Fou- 2 - Q1 2014 Update
  3. 3. Augustine Fou- 3 - Monthly Active User Decline Source: Twitter Q1 Earnings Data via BusinessInsider
  4. 4. Augustine Fou- 4 - Ad Revenues Still Growing Source: Twitter Q1 Earnings Data via BusinessInsider
  5. 5. Augustine Fou- 5 - User Engagement Down Source: Twitter Q1 Earnings Data via BusinessInsider
  6. 6. Augustine Fou- 6 - According to a recent Social Media Marketing University survey of more than 1,000 marketing professionals in the U.S., brands are mostly using Twitter to spread brand awareness. Surprisingly, driving sales is not nearly as important to marketers. Twitter is for Awareness
  7. 7. Augustine Fou- 7 - Executive Summary THESIS Remains optimistic that Twitter can be the recipient of branding dollars shifting from traditional (offline); but slowdown in growth and user engagement metrics confirms potentially large downside risk.
  8. 8. Augustine Fou- 8 - Executive Summary TWTR • Twitter’s revenues are entirely ad supported; and fits into an awareness category of ads (e.g. new launches) • The CPM cost of their ads are already higher than Facebook; raising prices to drive revenue will be limited • Twitter’s revenue per user is half that of Facebook • Revenues depend on users remaining engaged and viewing Timeline on Twitter (rather than 3rd party software) • Monthly Active Users data confirms continued sequential decline
  9. 9. Augustine Fou- 9 - Where Twitter “Fits” 2012 - $107B 2016E - $104B branding performance Television 65% ($70B, 2012) Digital 35% ($37B, 2012) Display (Facebook) 22% Search (Google) 46% Other 32%55% 45% Broadcast Cable Television 58% ($61B, 2016E) Digital 42% ($43B, 2016E) 42% 49% Other 9%51% 49% Broadcast Cable Branding (Facebook) Performance (Google) Mainly for branding and awareness, not as much reach as Facebook
  10. 10. Augustine Fou- 10 - Ad Revenue
  11. 11. Augustine Fou- 11 - Twitter Ad Revenue Source: Twitter SEC Filings
  12. 12. Augustine Fou- 12 - Operating Income Trend Source: Twitter via Google Finance • Cost of revenue trend is good (lower as % of revenue) • Operating expense needs to be monitored • Market cap is high relative to peers like LNKD and YHOO, who have more diversified revenues and upside.
  13. 13. Augustine Fou- 13 - Twitter Revenue vs Net Loss Source: Twitter SEC Filings
  14. 14. Augustine Fou- 14 - Facebook Average CPM = $0.59 Twitter Average CPM = $3.50 Facebook Average CTR = 0.119% Twitter Average CTR = 1-3% Facebook vs Twitter Ads Source: WordStream, Nov 2013
  15. 15. Augustine Fou- 15 - Twitter vs Facebook CPM Twitter CPM $3.50; Facebook CPM 0.35 Source: BusinessInsider, April 2012
  16. 16. Augustine Fou- 16 - Types of Twitter Ads
  17. 17. Augustine Fou- 17 - Promoted Accounts Source: Twitter Costs Cost-per-follow (CPF) Sample: $2-5 CPF Primary Uses • Gain followers • Create awareness
  18. 18. Augustine Fou- 18 - Promoted Tweets Source: Twitter Primary Uses • Sharing content • Amplify message • Offering deals • Building a brand voice • Building awareness Costs • Cost per Engagement (CPE) • Sample: 10s of cents
  19. 19. Augustine Fou- 19 - Promoted Trends Source: Twitter Pricing $200,000/day Primary Uses • Brand building • Generating awareness • Associating brand with a current trend
  20. 20. Augustine Fou- 20 - How Brands Use Twitter – For Awareness
  21. 21. Augustine Fou- 21 - According to the SMMU study, just 9% of respondents have used Twitter’s paid services, although another 44% are planning to explore them in the future. Some 17% are apparently unaware that Twitter even offers paid services. Those are lower figures than seen in the Ad Age survey, in which 46.5% of brands marketing on Twitter were also advertising on the platform. Twitter is for Awareness Source: Social Media Marketing University, March 2014
  22. 22. Augustine Fou- 22 - Upside? Or Concern? According to the SMMU study, just 9% of respondents have used Twitter’s paid services, although another 44% are planning to explore them in the future. Some 17% are apparently unaware that Twitter even offers paid services. Those are lower figures than seen in the Ad Age survey, in which 46.5% of brands marketing on Twitter were also advertising on the platform.
  23. 23. Augustine Fou- 23 - Twitter Users
  24. 24. Augustine Fou- 24 - Twitter User Stats Timeline views grew only 5%, which implies saturation. This has a direct impact on ad revenues.
  25. 25. Augustine Fou- 25 - Monthly Active Users This slowdown is not good news for Twitter and it may be a canary in the coal mine, regardless of ad revenue growth (it was 21% in the third quarter). The timeline is the centerpiece of Twitter's user experience, akin to Facebook's news feed. It's key to Twitter's long-term health as a platform.
  26. 26. Augustine Fou- 26 - Twitter Demographics Source: National Journal March 2013
  27. 27. Augustine Fou- 27 - Twitter Company Stats Twitter Company Statistics Data Total number of active registered Twitter users 554,750,000 Number of new Twitter users signing up everyday 135,000 Number of unique Twitter site visitors every month 190 million Average number of tweets per day 58 million Number of Twitter search engine queries every day 2.1 billion Percent of Twitter users who use their phone to tweet 43 % Percent of tweets that come from third party applicants 60% Number of people that are employed by Twitter 2,500 Number of active Twitter users every month 115 million Percent of Twitters who don’t tweet but watch other people tweet 40% Number of days it takes for 1 billion tweets 5 days Number of tweets that happen every second 9,100 Twitter Annual Advertising Revenue Revenue 2013 (Projected) $399,500,000 2012 $259,000,000 2011 $139,000,000 2010 $45,000,000 Source: Statistic Brain, May 7, 2013
  28. 28. Augustine Fou- 28 - Twitter User Growth Source: Hubspot
  29. 29. Augustine Fou- 29 - Twitter Users Sensitive to Advertising
  30. 30. Augustine Fou- 30 - Related Slideshares Investment Thesis: Groupon By: Augustine Fou, January 2014 Investment Thesis: WebMD By: Augustine Fou, April 2013 Investment Thesis: Facebook By: Augustine Fou, May 2013 Facebook Advertising Benchmarks by Industry By; Augustine Fou, June 28, 2013 Augustine Fou- 30 -
  31. 31. Augustine Fou- 31 - Dr. Augustine Fou – Agency Czar “I advise clients on using different formats of digital ads and defining clear metrics to show business impact and ROI. Specifically, clients can use search for driving traffic as well as insights about what customers are looking for.” FORMER CHIEF DIGITAL OFFICER, HCG (OMNICOM) MCKINSEY CONSULTANT CLIENT SIDE / AGENCY SIDE EXPERIENCE PROFESSOR AND COLUMNIST ENTREPRENEUR / SMALL BUSINESS OWNER PHD MATERIALS SCIENCE (MIT '95) AT AGE 23 ClickZ Articles: http://bit.ly/augustine-fou-clickz Slideshares: http://bit.ly/augustine-fou-slideshares LinkedIn: http://linkd.in/augustinefou

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