Twitter (TWTR) Now a Strong Buy as User Engagement Improves

On Dec 2, Twitter Inc. TWTR was upgraded to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Twitter is making it easier for people to tweet and express more, which is driving its user base. The company added four million monthly active users in fiscal third- quarter 2018, up 4% year over year. The company now claims to have 330 million monthly users. Moreover, daily active Twitter users increased 14%.

The company now projects $1.21 billion in digital advertising revenues for fiscal.

The company’s focus on live video streaming is a key catalyst. Moreover, strategic acquisitions have helped the company to register growth. Also, Twitter’s aggressive cost cutting has benefited its bottom line.

User Friendly Features

Twitter rolled out a 280-character limit for tweets earlier in November, doubling it from the legacy 140 limit. It is also working on things that will simplify things for those who are new to the platform.

Per a TechCrunch report, the company is experimenting with a new feature that will help users in determining how many people are talking about a tweet. It will solve a lot of complexities for new users that arise with retweets and replies.

The company also announced testing of the bookmarks feature that will help users save tweets for future reference.

Live Video to Drive Growth

Twitter is focusing on the live video feature to improve user engagement. The company streamed 830 live events in the last quarter and secured 30 new live partnerships. The higher user engagement will surely result in more advertising revenues.

Recently, to attract small business advertisers, the company started testing a $99 subscription service. With this subscription, Twitter will handle all the advertisers’ promoted tweets on the social media site.

Also, Twitter recently sold its developer product, Fabric to Alphabet Inc. in sync with its focus on re-building its core businesses and lowering expenses of its non-core businesses.

Cost Cutting Drives Profitability

Twitter has been taking cost cutting very seriously to achieve its long-term EBITDA target. The company has reduced 9% of its workforce worldwide, resulting in over $10 to $20 million of savings.

As a result third-quarter non GAAP expenses declined 10% while adjusted EBITDA was $207 million, way above the expected range of $130 to $150 million.

Acquisitions Add to its Portfolio

Acquisitions have played a key role in Twitter’s growth. To-date, the company has acquired over 50 companies that have expanded its technology, product portfolio and improved its software development capacity as well as infrastructure base.

Twitter is also stepping up its AR/VR efforts with the purchase of machine learning company – Magic Pony. Its AR/VR division was formed within Twitter Cortex to develop machine learning capabilities and improve its products.

Zacks Rank & Other Stocks to Consider

Twitter sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the broader technology sector include Intel Corporation INTC, IPG Photonics Corporation IPGP and NVIDIA Corporation NVDA. All of them sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Intel, IPG Photonics and NVIDIA is currently projected to be 8.42%, 19.67% and 11.20%, respectively.

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