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Why Twitter is Still Under-Valued


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Since pricing its IPO at $26, Twitter’s stock has been meteoric, reaching a high of $74.73 on December 26, 2013. However, the stock recently took a dive, raising some questions about Twitter’s viability as a public company. There is some punditry around Wall Street and Main Street that Twitter—a company that is not profitable and won’t be for at least until 2015—is overvalued and emblematic of another tech bubble. Instead, I’m going to argue that Twitter is under-valued.

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Why Twitter is Still Under-Valued

  1. 1. ShareBloc presents Why Twitter is Still Under-Valued Why Twitter is Still Under-Valued Why Twitter is Still Under-Valued
  2. 2. Twitter is Under-Valued Over two months from the Twitter IPO on November 6, 2013, I blogged in three separate posts on why Twitter is under-valued. This is the slideshare of my findings from these blog posts. You can find the whole anthology here: despite-rumors-to-the-contrary-twitter-is-still. Why Twitter is Still Under-Valued 2
  3. 3. Why Twitter is Under-Valued Part 1 An “effective” Twitter user is under-valued in the market because we don’t count offline views. Why Twitter is Still Under-Valued 3
  4. 4. Comparable Social Network Valuations At the end of the first day of trading, Twitter closed at $44.90, a 73% one-day increase, leading to a market cap of $24.5 billion. In context, here are the valuations of some other leading Internet social networks and content distribution platforms. Why Twitter is Still Under-Valued 4
  5. 5. Value Per User for Social Networks Compared to some other comps, Twitter’s value per user is valued materially higher above its closest public comps, LinkedIn and Facebook. Why Twitter is Still Under-Valued 5
  6. 6. User / Valuation Best Fit Chart If you plot its valuation and its users, an interesting trend line emerges. Why Twitter is Still Under-Valued 6
  7. 7. User / Valuation Best Fit Chart Removing Facebook, the r-squared shows Twitter and Snapchat outperforming the other comps with Pinterest and Yelp underperforming. Why Twitter is Still Under-Valued 7
  8. 8. Users are the Wrong KPIs Each company uses a set of key performance indicators (KPIs) to measure performance. Twitter uses Monthly Active Users (MAU) but it may be a misleading KPI. This is because, unlike LinkedIn, Facebook or any other social network, Twitter also has offline impressions enabled by the sharing of tweets outside the platform. In the video, Dick Costolo talks about President Obama’s Twitter reach. President Obama already has a massive reach with its 37 million followers and the 800,000 subsequent retweets, reaching an additional 25 million people. This is augmented by impressions offline. The Today Show has approximately 4.7 million viewers and a popular German periodical has a circulation of 1 million readers. This means the value of Twitter goes beyond Internet properties. Why Twitter is Still Under-Valued 8
  9. 9. Twitter’s Value Per User is Misleading Advertisements like the Oreo Ad reach beyond @Oreo’s twitter followers, which means Twitter’s effective user count is much larger. By leveraging its brand in a real-time distributed manner, Oreo reached a far larger audience than its Twitter followers by being broadcasted across local news stations and other press. I rarely see a Facebook or a LinkedIn profile being broadcasted in this manner, do you? If you consider the number of Twitter users to include the millions of non-Twitter users who are exposed to tweets, Twitter’s “user count” is significantly higher and its valuation per user now looks incredibly cheap. Why Twitter is Still Under-Valued 9
  10. 10. Why Twitter is Under-Valued Part 2 Twitter Mobile Revenue Has Higher Upside Than Any Other Social Network. Why Twitter is Still Under-Valued 10
  11. 11. Mobile is Tweeting the World Unlike Facebook or LinkedIn, which adopted a mobile strategy long after inception, Twitter was born in it. Although, technically, Twitter emerged as a web app first, its early origins in alpha and beta had mobility in its DNA. Much of its product decisions in Twitter’s nascent days were influenced by the limitations of SMS and mobile. Everything from the original name (“twttr”) and the 140character limit dealt with the limitations of SMS in a pre-iPhone mobile world. Mobile phone users who were accustomed to typing SMS without a QWERTY keyboard could tweet more conveniently than email. Why Twitter is Still Under-Valued 11
  12. 12. Facebook and LinkedIn HTML5 Mistakes “Our biggest mistake was betting too much on HTML5.” – Mark Zuckerberg, September 2011. Why Twitter is Still Under-Valued 12
  13. 13. Twitter Leads in Mobile As a percentage of users and revenue, Twitter exceeds both Facebook and LinkedIn with 76% of monthly active users and 70% of revenues coming from mobile in the third quarter of this year. Why Twitter is Still Under-Valued 13
  14. 14. Facebook Mobile Growth Facebook reports directly (or indirectly) three metrics (I’ll use my own terms to describe them): • • • Mobile-Only Users (A): These users only access Facebook through a mobile device. Mobile+Desktop Users (B): These users access Facebook through both a mobile device or through a desktop. All Mobile Users (C = A+B): These users include all mobile users, some of whom access Facebook also through a desktop. Why Twitter is Still Under-Valued 14
  15. 15. Facebook ARPU Increasing Facebook ARPU has been steadily going up for the past five quarters. From this, we can imply that the average mobile ad CPM will continue to increase to match its desktop web equivalent, which can conservatively be calculated at 3-4x. If Twitter mobile ARPU follows along Facebook’s mobile ARPU trajectory, Twitter should see tremendous upside in their revenue growth. Why Twitter is Still Under-Valued 15
  16. 16. Twitter Mobile Monetization Twitter will continue to increase ARPU and monetization with additional features and products including: • Twitter Cards for App Downloads and Lead-Generation • Twitter In-Stream Videos • Twitter Image Previews All this is In-Stream and optimized for Mobile. Why Twitter is Still Under-Valued 16
  17. 17. Why Twitter is Under-Valued Part 3 Twitter International Revenue Has Higher Upside Than Any Other Social Network. Why Twitter is Still Under-Valued 17
  18. 18. TGIF: Twitter Goes International First An overwhelming 77% of Twitter users reside outside the United States, but account for only 25% of revenue. This is a revenue opportunity. Why Twitter is Still Under-Valued 18
  19. 19. US Twitter Users More Monetizable A Timeline view is how Twitter measures engagement and at the moment, the primary mechanism for monetization. Twitter engagement lags International MAUs: 72.8% engagement vs. 77.2% user base in Q3 2013. In other words, US Twitter users are more engaged than their international counterparts, and thus, more monetizable. Why Twitter is Still Under-Valued 19
  20. 20. But International is Catching Up The International ARPU is growing at a 22% quarterly growth rate, compared to the US at 7%. While it’s unlikely the International ARPU will close the sizable $2.22 ARPU gap anytime soon, there is an opportunity for greater revenue expansion internationally. Why Twitter is Still Under-Valued 20
  21. 21. Facebook’s International Growth is Guide Of Facebook’s 1.2 billion members, 83% reside outside the US & Canada. Compared to Twitter’s 77%, you would think Facebook would have a similar monetization problem. Why Twitter is Still Under-Valued 21
  22. 22. Facebook Monetizes International 53% of Facebook’s revenue comes from their international user base, compared to Twitter’s 25%. Why Twitter is Still Under-Valued 22
  23. 23. How Can Twitter Catch Up to Facebook? Facebook has had more years to monetize their international users. To catch up, Twitter has began a series of business development and product launches to capture more value out of its international users: • Twitter Pictures in Direct Messages: Twitter’s move to allow photos in Direct Messages is the first shot across the bow into messaging • MoPub Services Native Ads in Tango Messaging Platform: MoPub, a mobile ad platform recently acquired by Twitter, is announcing a native ad product, which conveniently looks like Twitter’s own native ads. • Twitter Retargeting: Twitter’s retargeting platform, Tailored Audiences, is another ad product that can contribute to Twitter’s topline. • Twitter via USSD: By allowing access to tweets through USSD, Twitter opens up to a large group of mobile-first users without smart phones or data plans. • Twitter’s International Partnerships: Twitter is working with international telecom partners to make it easier to tweet. Why Twitter is Still Under-Valued 23
  24. 24. Conclusion While Twitter stock has risen considerably since the original posts, I still think there is tremendous upside for Twitter. Consider that Twitter only began generating minimal revenue in 2009. Comparatively, Facebook was generating $777 million in revenue that year. In its IPO filing, Twitter says it plans to expand their self-service advertising platform to countries outside the US. With opportunities offline, in mobile and internationally, Twitter has plenty of upside. Disclaimer: I don’t own any Twitter stock but I have friends who work there. If the stock goes up because of this, I may get free drinks from them (maybe). Why Twitter is Still Under-Valued 24
  25. 25. Join ShareBloc Join ShareBloc to get other great content like this, curated by peers like you and delivered directly into your inbox. Why Twitter is Still Under-Valued 25
  26. 26. Contact David Cheng CEO & co-founder Why Twitter is Still Under-Valued 26