recently bought approximately 900 patents from
International Business Machines (
. The companies also entered a cross-licensing agreement, which
will allow IBM to continue using the patents. However, the
financial terms of the transaction were not disclosed.
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Just prior to Twitter's Initial Public offering (IPO) in 2013,
IBM threatened to sue the company for allegedly violating three
of its patents. The current deal not only ended the skirmish but
also expanded Twitter's patent portfolio substantially.
At the time of the IPO, Twitter had 9 patents with another 95
pending applications. This was meager compared to its closest
774 patents prior to its IPO in 2012. The lack of patents made
Twitter vulnerable to legal attacks, which would have stalled its
As Twitter plans to expand its services by offering new products
including video, we believe that the enhanced patent portfolio
will remove this vulnerability. According to Bloomberg, Twitter
bought patents related to technologies used for video
compression, messaging and international shipping requirements.
Twitter is set to release its first earnings report on Feb 5. The
company's 232 million and growing monthly user base is the key
growth catalyst. New products and services are expected to help
the micro-blogging site attract new customers, going forward.
Since its IPO, Twitter has surged 43.7%. Twitter's bullish run is
primarily driven by investor optimism on its ability to attract
more advertising revenues, despite facing significant competition
from Facebook and market leader,
As spending on online advertising is expected to increase
manifolds compared to traditional media, Twitter has massive
growth opportunity, due to its strong mobile products. Mobile
advertisement contributes approximately 70.0% to Twitter's
According to market research firm, eMarketer, Twitter's revenue
share in mobile advertising market is expected to increase from
2.6% in 2012 to 3.2% in 2013. This is further expected to
increase to 4.1% in 2014 and 4.4% in 2015.
The Zacks Consensus Estimate for the last quarter is currently
pegged at a loss of 10 cents on revenues of $212.0 million. For
fiscal-year 2013, the Zacks Consensus Estimate is pegged at a
loss of 76 cents on revenues of $634.0 million.
Currently, Twitter has a Zacks Rank #3 (Hold).