Micro-blogging site, Twitter Inc. (TWTR) held its first analyst day on Nov 12, 2014, following which shares of the company were up 7.45% ($2.95) and closed at $42.54.
During the course of the event, management declared its long-term objective of becoming one of the top revenue generating Internet companies worldwide. The company hopes to do so by reaching out to the largest daily audience worldwide.
Management also threw some light on its expectations for fiscal 2014. Twitter expects net revenue to be $924 million with ad revenue contributing $824 million and the remnant $100 million coming from the Data Licensing and other revenue segment.
Management also announced that the company would register net sales amounting to a whopping $14 billion during the next 10 years. Also, management expects to generate long term margins in a range of 40-45%.
Twitter declared that the three-basic objectives were to strengthen the core, reduce barriers to consumption and develop new apps and services.
Twitter intends to improve the experience of new users by introducing an “instant timeline” so that they can avail the site’s service readily without the need to follow anyone.
Twitter also declared its intention of launching ways for people to record, edit and share video in real time using the Twitter app by early 2015.The new and improved app will be efficient enough to combat the likes of Google’s (GOOGL) YouTube.
A “what you missed” feature will also be added so that users know the most important events that had occurred since the last time that they had logged into the site. Further, from next week onward, an update will be provided whereby public tweets can be shared within private messages.
The company also has plans of unveiling new mobile apps beside those of Twitter and Vine. With a view to attract more users, Twitter intends to tailor its content to suit the needs of the local market.
Moreover, a “quick promote option” will soon be available to enable users to turn their respective tweets into advertisements with the help of just a few clicks.
With an eye to widening its reach, the company intends to expand its local presence in 25 nations going forward.
Twitter believes that it attracts a little more than 500 million monthly unique visitors who are not logged into the site and these users offer a huge opportunity, which is yet to be explored.
Our Take
Of late, the company has been struggling with a slowdown in user growth. We believe that the efforts of management will pay off and very soon user growth will rebound.
We believe that the company has intentionally kept its focus on long-term targets with an eye to win the confidence of skeptical investors.
However, we believe that as Twitter is likely to increase its expenditure on product development, its profitability will be adversely impacted.
Nevertheless, as spending on online advertising is expected to increase manifold compared to traditional media, we believe that Twitter has massive growth opportunity due to its strong mobile products.
Further, we believe that new products and services will continue to attract users in the long run. Twitter’s ability to attract more advertising revenues, despite significant competition from Facebook (FB), Yahoo! Inc. (YHOO) and market leader, Google, will be something to watch out for in the near term.
Currently, Twitter has a Zacks Rank # 2 (Buy).
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