Twitter, Inc. TWTR appears to be on its way to explore the Chinese market following Facebook’s FB attempt to grab a share of this Far East market. Like to Facebook and Google’s GOOGL YouTube, Twitter is also banned in mainland China. Nevertheless, the company opened a new office in Hong Kong — a Special Administrative Region and a prime business center in China.
As an increasing number of Chinese companies strive to expand their business worldwide, Twitter stands to garner higher advertisement revenues. Hence, the Hong Kong office would primarily employ sales staff headed by Peter Greenberger, Twitter’s Singapore-based director of sales for emerging markets.
While the masses in China are debarred from using social networking sites like Twitter, interestingly, corporate giants like Alibaba BABA, Lenovo, Xiomi, Air China and Chinese media such as People's Daily and Xinhua have been using this platform to reach out to the global audience. Consequently, the new office is expected to help Twitter collaborate with other major Chinese companies to support its international growth.
Apart from Hong Kong, Twitter has established offices in Seoul, Tokyo, Singapore and Jakarta.
Similar to other networking sites, Twitter’s business is mainly dependent on ad revenues, and therefore the international market offers the brightest opportunity to support its top line. In the fourth quarter, the company entered as many as 13 markets, expanding its sales footprint to 73 countries. Twitter has been witnessing significant traction in the international markets, including APAC (especially Japan) and EMEA (primarily United Kingdom and Ireland). As a result, the company witnessed a robust 149% year over year increase in international revenues to $164 million.
In fact, international revenues contributed about 34% to the company’s total revenue. Although the rate of growth in international revenues remains substantial, when compared to the user base, 70% of which is outside U.S., it seems nominal. Twitter lacks a strong business model in international markets compared to its U.S. model which deters its revenue growth considerably.
Going forward, it is believed that Twitter’s attempt to enter the Chinese market would balance the scale as Chinese enterprises strive to reach out to the global marketplace with massive promotional activity. Also, the lack of a proper platform in the field of digital marketing is an advantage for Twitter.
According to eMarketer, Chinese firms like Baidu BIDU and Alibaba are gradually becoming competing players in the global ad seller and a major share of their growth comes from the country’s enormous online advertising market. Both these companies have benefited from the rapidly expanding mobile ecosystem in China, where mobile Internet ad spending skyrocketed 600% in 2014.
While Google is likely to see a dip in its market share in the near term, Chinese players would continue to gain market share according to eMarketer, which highlights the growing importance of China as one of the key markets for ad sellers. Hence, we remain optimistic about Twitter’s recent foray in the country and expect it to drive revenue growth in the international markets for this Zacks Rank #3 (Hold) company.
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