TwitterTWTR has been the best performing social media stock in the past year, returning an astounding 143.5%. In comparison, Facebook FB shares have returned 31.8%, while Snapchat parent Snap SNAP has lost 14.1%.
Twitter's scintillating performance can be attributed to its initiatives that diversify it from being a mere micro-blogging site to a social media provider. The recently announced "camera-first feature", as reported by CNBC, is a well-timed step in that direction.
Twitter is also working on algorithmically curated timelines on big news events and placing them on top of users' timelines.
We believe that both Snap and Facebook should take note of these initiatives as the struggle for supremacy in the social media market heats up.
Addition of Engaging Features
Twitter has been experimenting a lot in the last few months by bringing attractive features in its attempt to make the platform more engaging.
We note that the rollout of the 280-character limit for tweets (double from the legacy 140 limit) and introduction of Threads have made tweeting easier and more expressive. These have also resulted in an uptick in tweet impressions. Twitter introduced Bookmarks last month to enable users to save tweets in one place for future reference.
Twitter has also been focusing on "live" to turn around its fortunes. Live streaming has resulted in an increase in user engagement. Notably, ad engagements increased 75% year over year in the last reported quarter.
As video ads generate more revenues than text-based substitutes, Twitter is trying to incorporate more video-oriented content to attract more advertising revenues.
Notably, in the last quarter, Twitter delivered GAAP profit for the first time in its 10-year history. Management remains focused on improving the core platform, which is likely to sustain its profitability.
Twitter, Inc. Revenue (TTM)
Steps to Grab More Ad Revenues
Twitter's ability to attract advertising revenues amid significant competition from the likes of Facebook, Snapchat and Alphabet will be a key factor determining its growth.
Talking about Twitter's possible shift toward images and videos with the camera feature, CNBC was quoted saying, "The new function would combine location-based photos and videos with Twitter Moments around notable events. Companies could sponsor events or place ads in between tweeted real-time photos and videos."
The feature directly competes with Snapchat's location-based Story posted in the Discover tab of the application. While Twitter's diversified user base is a positive, Snapchat's predominantly young user base has been a major concern for investors.
Although Snapchat has been trying to combat all odds by bringing new features, the recent redesign of the application has disappointed users. We believe user dissatisfaction with the new design can dent its advertising revenues, at least in the near term.
Moreover, Twitter's tweak in timeline to highlight major news events other than the current focus on sports-based news is expected to increase user engagement on the platform and be accretive to growth.
It is also opening avenues for the company to compete with Facebook. This is because the social media giant has resorted to News Feed changes in order to limit public content, news and video. The change affected Daily Active Users (DAUs) in its most penetrated market - the United States and Canada - in the last reported quarter. Per Facebook, these updates brought down time spent on the platform by 5% or an estimated 50 million hours per day.
Although Twitter's Monthly Active User of 330 million falls way behind Facebook's whopping 2.3 billion, such diversification measures are expected to boost its presence in the social media market and drive more advertisers to the platform.
Zacks Rank & Stock to Consider
Twitter carries a Zacks Rank #3 (Hold).
A top-ranked stock in the broader technology sector is Paycom Software Inc. PAYC , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks Rank #1 stocks here .
Long-term earnings growth rate for Paycom is projected to be 25.8%.
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