Twitter Remodels The House

Wall Street analysts have a favorable view of Twitter’s features announced last week. One feature would provide the ability for users to charge their followers for access to additional content, while another would offer the ability to create and join groups based around specific interests.

Super Follows, scheduled to debut later this year, will allow Twitter users to charge followers and give them access to extra content — something like bonus tweets, or subscription to a newsletter.

The features were announced at Twitter’s virtual analyst day on Thursday. The company also provided an update on its key strategic priorities, with a particular focus on the company's products and engineering functions.

“Twitter addressed its historical reputation as a company where product innovation and launches tended to roll out at a slower pace than its competitors,” Aaron Kessler, Raymond James analyst, wrote in a research note published late last week. “Management has set a target to double the number of successful features deployed per employee by year end 2023. The company has made strides on clearing tech debt and modernizing its systems.”



Twitter's plan will focus on adopting external solutions for non-differentiated areas of the platform, modularizing its platform architecture, and improving experimentation on machine-learning models. The company plans to make significant investments in infrastructure and headcount and to the back-end systems.

For those who do not know, Twitter rebuilt its ad server in 2020, Kessler explains. Direct-response is a key focus for its ad-offering buildout.

Kessler wrote that the company has disclosed that 85% of its 2020 advertising revenue was brand spend, while 15% was direct-response. The company is looking to get closer to a 50/50 product-focus shift to direct-response offerings.

The key objectives that Twitter plans to meet by the end of 2023 include doubling the velocity of product development, measured by successful features shipped per employee; growing monetizable daily active use (mDAU) to at least 315 million, about 20% CAGR; and more than doubling its annual revenue to $7.5 billion in fiscal-year 2021.

“Twitter's DR offering is currently headlined by the Mobile App Promotion (MAP) format, which generated $95M in revenue in 4Q20 (+50% y/y),” Kessler wrote.

Colin Sebastian, analyst at Baird Capital, in a research note called the move “remodeling the house.”

Sebastian wrote that Twitter’s limitation has been around brand advertising and the inability to find a way to monetize shopping and direct-response and small and medium-sized businesses, which are basically the core business for Google and Facebook.

With 85% of its business still in brand advertising, Twitter has an opportunity, but shopping may not be an easy fit for the platform, Sebastian wrote.

He believes Twitter can get to its “$7.5 billion revenue goal even on 250 million users with fairly reasonable monetization growth.” He points to growth drivers as being larger audiences, new ad formats, secular shift to digital-like TV ads, and greater advertising relevance.

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