The beginning of 2014 has not been encouraging for
) as share prices declined for the fourth consecutive day to
close at $57.05 on Thursday. Shares have tanked almost 17% from
the Jan 3 price of $69.00 following downgrades by analysts.
The most possible cause for the downgrades is the ad ROI
reported by advertisers as compared to some of the other social
and professional networking companies such as
). Higher pricing and higher 'cost of campaigns' are related to
the low ROI on ad spends that have led to the downgrades.
These downgrades will make it difficult for Twitter to
capitalize on the expected increase in online ad spending in the
years ahead. According to market research firm eMarketer, global
social ad spending is expected to go up 8.9% in 2014 and 9.9% in
2015. However, the research firm expects Twitter's share in the
U.S. mobile Internet revenues to touch 3.5% in 2014 but drop to
3.4% in 2015.
Nonetheless, despite being much smaller than peers like
), Twitter's frequent product launches are expected to help
increase user engagement. The company has approximately 230
million global monthly active users.
The company's recently announced products such as Tailored
Audience, photo messaging and direct messaging are significant
positives, which will help it to compete with the likes of Line,
WhatsApp and Snapchat.
We believe that Twitter's new mobile products will boost
customer engagement and drive user base, which will fetch more
advertising revenues, going forward. Mobile advertisement
contributes approximately 70.0% of Twitter's revenues. Moreover,
we believe that the company has significant growth opportunity in
Currently, Twitter has a Zacks Rank #3 (Hold).
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