It has been well documented in the past that Twitter (“TWTR”) has experienced its ups and downs over the years. For the past few years, however, the company has been posting increasingly positive results and has grown its monthly active users. In fact, Twitter has now crossed the threshold of a critical mass of active users, where advertisers now have an interest in leveraging the platform for their marketing campaigns. The question now is whether Twitter is getting the respect it deserves as it relates to its ability to maintain these positive trends, as the recent sell-off in shares of TWTR would suggest. While there are some concerns regarding Twitter’s growth prospects, we think a more measured outlook is warranted as we believe the company is poised for continued success. We also believe investors are failing to recognize what will likely be a multi-year re-rating process at TWTR, and we believe shares could see an ~70% increase from current levels. This would bring TWTR shares up to a price of $60.
TWTR is a global platform for public self-expression and conversation in real time. TWTR enables people to create, distribute and discover content that is currently published and viewed hundreds of millions of times per day. TWTR has two principal products: (1) TWTR Products, which enables its users to create, distribute and discover content; and (2) TWTR Platform, which is focused on the commercial operation and infrastructure needs of the broader global ecosystem.
TWTR Products offer TWTR users with the ability to create, distribute and discover content, which may be text, photos, videos or other materials ("Content"). TWTR users can view Content on a number of platforms, including www.twitter.com, certain third-party applications (such as "TweetDeck") and through access to text messages from wireless carriers (collectively referred to as "TWTR Applications"). Additionally, third-party applications provide "Tweet this" buttons, which, when clicked on by users, allow the users to share TWTR Content in their social media streams.
TWTR's moat derives from its position as a globally dominant platform for public self-expression and conversation. Because of its wide-scale distribution and the high level of user engagement, TWTR products have become an integral component of the social fabric in many countries. TWTR has two types of users: average users and influencers. Influencers include a small percentage of the user population, numbering in the millions, that includes very high volume producers of content, as well as high frequency retweeters of content. As a result, this high level of engagement generates a disproportionately large amount of usage.
TWTR possesses several competitive advantages, including a large audience, a high degree of engagement of users, and a well-developed technology platform. These qualities give TWTR a moat as they allow the company to sustain higher than normal growth rates, as well as enhance its ability to collect and distribute information efficiently. The user engagement and the high degree of audience distribution provide a moat because the user base can be used to market to third parties and to gain more users. The high level of audience engagement also provides a moat in the sense that TWTR can capitalize on such engagement by providing targeted advertising. The technological capabilities of TWTR provide a moat because they enable the company to better attract, retain, and grow its user base, as well as provide the technology needed to facilitate the advertising process. As such, the aforementioned qualities, together with TWTR's competitive advantage, give the company a highly defensible business.
The market for online advertising is currently extremely fragmented with no dominant players, making it an attractive segment of the Internet industry. Further, TWTR has a large following of users who generate a high level of traffic for the company. Its large audience attracts the attention of potential advertisers, who are willing to pay for access to TWTR users. As such, TWTR has established itself as a viable advertising platform and one that is the leader in many geographical regions. This online advertising market has been growing quickly in recent years, and as a result, advertisers are willing to pay a high amount to advertise on TWTR’s platform.
In terms of growth potential, TWTR has a large market, as it targets approximately 3.2 billion Internet users in the world. Additionally, it has a large user base relative to competitors, which increases its potential to grow.
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