In Focus: Twitter 2021
In November 2013 investors were preparing to invest in another millionaire maker. At that time the term "social-media" was becoming a buzz word like "blockchain" is today, and the millionaire maker was supposed to be Twitter (TWTR).
Twitter was going public more than a year after the Facebook (FB) IPO, and investors were hungry to get into the social-media business.
Facebook had gone public in May of 2012, and made its early investors billionaires, but the investors who purchased the stock after the IPO took a beating for a while.
Facebook's IPO price was $38 per share, and after the stock's debut it traded down over the next 14 weeks before finding support. The stock traded for under $20 per share for several weeks to the delight of skeptics who believed the social-media company was worthless because it didn't sell anything, but little did they know.
After Facebook found its support the stock would go on to rally and make millionaires. Twitter's stock however struggled for much longer than 14 weeks. Twitter's IPO was priced at $26 and traded to a high of $74 per share to close out 2013, but after that, it was a two year slide for the stock and another year of trading sideways.
The biggest hurdle to Twitter's stock between 2015 and 2018 was Facebook's success. Wall Street could only compare Twitter to Facebook, and downgraded Twitter because it couldn't replicate Facebook's success. While Facebook's stock flourished, Twitter's stock floundered.
At the time, very few analysts knew how a social-media company was supposed to work, and for that reason all social-media companies were put in the same bucket and expected to adhere to the same business model, and this hurt how the Street viewed Twitter.
The gap between Facebook and Twitter was extremely wide when compared head-to-head. In 2016 Facebook reported $27 billion in revenue and $10 billion in profits, during the same year Twitter reported $932 million in revenue and a net loss of $457 million.
A New Twitter / It's Okay Not to be Facebook
The tides are changing for Twitter and it appears professional investors are starting to see that it is a different animal from Facebook, and may never be as valuable as Facebook, but still very valuable.
In 2017 Mark Cuban made headlines for investing in Twitter. Cuban made the investment during a time when Wall Street analysts had written off Twitter and were licking their wounds from SNAP (SNAP), which had gone public in March 2017 and just couldn't stop dropping in price.
Cuban's reasoning for the Twitter investment was because of the company's focus on machine learning and artificial intelligence. While Wall Street analysts were beating down Twitter for not being like Facebook, Twitter was looking towards the future and Cuban noticed.
Twitter spent a good portion of the 2010s acquiring machine learning and artificial intelligence companies. In 2013 Twitter acquired data-visualization firm Lucy Sort. In 2014 Twitter acquired deep learning startup Madbits, and in 2015 it acquired Whetlab, a machine learning startup. 2019 saw Twitter lean in even more with the acquisitions of Fabula AI and Aiden.ai.
Jack Dorsey, Twitter's CEO, did what companies should do when the spotlight is off of them, he looked towards the future, instead of managing for the quarter.
Twitter is trading at $68 per share as of this writing. The stock briefly traded above $80 per share on February 25, 2021, but has sold off since then. For investors who have followed Twitter since its IPO, it once seemed that the stock would never trade out the $14 range, but it now has in a big way.
A Path Forward, Maybe
Twitter was able to report revenue growth of 7% in 2020. The global conversation surrounding COVID-19 played a big part in the company's revenue growth, as did the U.S. elections and Donald Trump's last few months on the platform.
Twitter's management knows a repeat of 2020 will be tough, and advised investors that they expect slower year-over-year revenue growth in 2021, but it may not be as bad as the company thinks.
The rise of GameStop, AMC, Blackberry, and the other meme stocks has made the data licensing aspect of Twitter very valuable.
Twitter allows programmers, whether hobbyists like myself or major companies and outlets to data mine tweets. For a programming newbie like myself, I've been able to use the Twitter API (Application Programming Interface) to get sentiment on stock symbols and find out what stocks are being tweeted about the most, which is very elementary programming.
There are major firms that have large scale applications that are capable of getting sentiment analysis, as well as use what's going on socially to make winning stock picks. My access to Twitter's data is free, but I only get to make a small number of requests to the service per minute. Large companies who need to have the program constantly accessing Twitter's data for information have to pay for that unlimited access.
Revenue from data licensing and other grew by 9% in 2020, in comparison revenue from advertising services grew by 7%. The rise of the meme stocks has shown that it pays to be plugged into social media, and firms that aren't yet will likely be by the end of Q1 2021. There may be no better tools to judge sentiment than Twitter and Reddit.
It's Twitter In The End
I've always been a believer that when it's all said and done Twitter will still be standing. It will never have the growth that Facebook had in its heyday or TikTok has now, but I think it will survive.
The value of Twitter rests on my ideal that Dorsey and company have not really figured it out yet. Yes, they make advertising money, and from the start getting users and throwing advertisements at them has been the way that social-media companies make their money, but I'm not sure that's the most profitable business model for Twitter, or the way they're currently doing it is the most profitable way for them to do it. But I have to admit, I have no ideas of how to do it better.
The subscription model is being tested by Twitter now. I've rejected the idea in the past because I believed that all that I loved on the platform would be put behind a paywall, but the company thought of something better, but not that original. Twitter is testing a feature that will allow Twitter users with large followings to charge their followers for exclusive or additional content, which is the Patreon business model, but now on Twitter. I'm eh on the ideal, I don't love it, I don't hate it, but I will follow it closely to see how it goes.
I remain a big believer in Twitter. I wrote about the company in July 2019 , and I advised anyone who would listen to buy the pullbacks. I feel the same way in 2021, buy the pullbacks with optimism that Twitter's management is going to really figure out how to maximize the platform's earning potential.