Analyst Expects Changes, Mobile To Fuel Twitter Ad Growth

Even as questions linger about Twitter's user growth, the microblogging service has continued to show strong ad gains this year. Its revenue more than doubled in the second quarter to $312 million, partly due to a burst of advertising and activity around the World Cup. A new JPMorgan report today suggests Twitter's upward ad trajectory will continue based on recent anecdotal checks.

"Twitter monetizes at roughly 50% the per user rate of Facebook today and we believe that gap will tighten over time," wrote JPMorgan analyst Doug Anmuth. "As monetization improves, we believe Twitter will realize greater margin expansion based on the user generated content nature of the platform and broader rollout of self-serve advertising."

As a result, Anmuth on Thursday raised his rating on shares of the company to "overweight" from "neutral."

He also expressed confidence in Twitter's ability to accelerate user growth through recent steps to speed up “onboarding” of new users. These include being able to access a user's contacts to increase follows, making more relevant suggestions for user follows and reducing steps in the sign-up process. Reflecting the changes, JPMorgan raised its estimate of net user adds to 17 million in the third quarter, while forecasting about 600 million globally in 2018.

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Furthermore, Anmuth sees promise in experiments with new ways to segment content on Twitter by topics or themes like work, personal or sports, and shift away from the reverse chronology “firehose” over time to be more accessible to a wider range of users. “The World Cup timeline from this past summer give us some sense of how Twitter can separate content, as does the new #NFL Timeline,” he stated.

Some of the recent changes by Twitter have generated controversy among existing users. That was especially true with the move in August allowing for the inclusion of tweets from accounts that users don’t follow, based on what Twitter determines someone would find most interesting or relevant. Facebook over the years has seen similar user backlashes to design or policy changes, but continued to expand its user base regardless.

One thing that has changed much since the company's start is the mobile-friendly nature of Twitter’s short messaging platform. More than three-quarters of both its usage and ad dollars now come from mobile, and the report projects that Twitter will continue to benefit from the consumer shift from desktop to mobile devices. 

Twitter’s mobile-centric DNA should prove especially useful in expanding its business outside the U.S., which currently represents about two-thirds of its ad revenue. “We believe Twitter has an advantage when entering international markets as it is optimized on mobile devices to a greater degree than all of the other large-cap online advertising players,” wrote Anmuth.

Over time, he projects that will lead Twitter to close the gap in ad revenue between the U.S. and international markets from a ratio of about 5 times greater to 3.7 times greater.

The JPMorgan report came a day after Twitter announced launching a $10 million project with MIT’s Media Lab to focus on developing new technologies based on the ways people communicate via Twitter and other social platforms.

The company's stock was up about 4% in afternoon trading to just over $52 a share.

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