Social networking website, Twitter (TWTR) is keen on growing its advertising business and reportedly, expanded the advertising space from Timeline to users’ following list. Some of the celebrity Twitter users have noticed the change, but it is not clear if the company has fully rolled out this advertisement strategy for marketers.
We believe that Twitter will benefit from this higher spending by marketers as its innovative product portfolio continues to attract advertisers (its primary revenue source). The company frequently launches products for advertisers, which aims at increasing advertisers’ return on investments. This encourages advertisers to spend more on the platform. Twitter’s partnership with Omnicom Media Group is one such deal (worth approximately $230.0 million), which will boost the top line. The deal is also expected to boost Twitter’s status and appeal as an advertising platform, which will attract new advertisers, going forward.
However, Twitter has been affected by the slowdown in its user growth rate. Attracting more advertising revenues will be difficult if it cannot improve its user growth, especially considering the significant competition from Facebook (FB), Yahoo! Inc. (YHOO) and market leader, Google (GOOGL).
We believe that the acquisitions of Cover, Gnip, TapCommerce, Namo Media and CardSpring will expand Twitter’s product portfolio and monetization capability. Furthermore, the company’s foray into e-Commerce by testing the ‘Buy Now’ button is a significant positive, in our view.
Currently, Twitter has a Zacks Rank #3 (Hold).
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