Since Twitter (TWTR) went public in November 2013 (when its shares surged nearly 73% on the first trading day), excitement has fizzled as the lofty expectations from analysts have not been met. In 2015, CEO Dick Costolo stepped down and now that Dorsey has taken reign as CEO (he is also the Co-founder and chairman of Square) the strategy has been moving towards ease of use. Twitter is finally starting to build momentum and has posted a profit in its two most recent quarters.
Twitter’s five-year revenue growth has surpassed 50% and EPS is expected to grow over 30% in the next five years. While these numbers are impressive, they do lag other social media giants such as Facebook (FB)- Which boasts over five times the user base and has significantly higher monetization rates.
In its latest quarter, the international growth theme has shown promise with over 5 million users being added outside of the US. Additionally, Twitter continues to focus on product enhancements which should help them build more partnerships. Recently the company announced a deal with Disney (DIS) to launch live content and advertising via its platform. The data licensing business model is another future growth catalyst for Twitter, and provides the company a unique advantage over other social media networks.
Since late April, Twitter has received five analyst upgrades and no recent downgrades. Twitter carries a quick ratio of over 10 which supports their exemplary balance sheet position.
Twitter’s use of the hash tag (#) symbol in its open distribution platform has been an ingenious way for users to quickly build a campaign or make an idea “trend.” One interesting theme that has played out very well for Twitter is the Donald Trump presidency.
The 45th President of the United States has seen exponential growth in followers since 2014. Note in the graph below, that his followers have continued to grow to a level above 52 million at the time of writing.
Trump is arguably one of the most effective users of social media and has used Twitter as a strategic weapon. One can certainly parallel the renewed prevalence of Twitter with Mr. Trump. George Lakoff, an expert on cognitive science and linguistics at the University of California – Berkeley had analyzed Trump’s tweets and summarized his findings in the graphic below:
Twitter’s long-term success will be highly dependent on whether or not other top celebrities and social figures utilize Twitter as a main source of messaging compared to other mediums. In the short-term, there are many positive catalysts for Twitter especially up to the next election cycle. In the long-term, the profitability growth story has shifted from remote to somewhat likely.
Disclosure: The author has no position in Twitter (TWTR).