This week, Twitter (TWTR) agreed to purchase TapCommerce, a top player in the mobile ad space. While no price tag was disclosed, the buzz is that the deal came to about $100 million. The acquisition also comes on the heels of a big run for Twitter stock, which is up about 25% since late May.
First, let’s get some background on TapCommerce: Founded in 2012, the company saw lots of potential with mobile ad retargeting. Granted, this type of technology has been around for quite some time, but it has traditionally been focused on the desktop.
Example: Suppose you visit an ecommerce site and check out some products but do not make any purchases. Then you visit other sites and see ads pop up for that same ecommerce site. These generally have a higher conversion rate because you have already indicated some level of interest in the products.
Yet when it comes to smartphones, retargeting has been tough to pull off because there are no cookies, which make it easier to follow a user from site to site. But TapCommerce has built technology that leverages huge amounts of data and algorithms to essentially do the same thing. In fact, other companies like Facebook (FB) and Google (GOOG) also have mobile retargeting. So for TWTR, mobile ad retargeting has certainly become a must-have if it wants remain competitive.
All in all, TapCommerce has gotten lots of traction and could provide some fuel for Twitter stock. The company processes more than 15 billion targeted ad impression bids per day, on more than 50,000 apps. It also has particular synergies with TWTR, such as Twitter’s extensive amount of user data, as well as its mobile ad network, MoPub.
And the TapCommerce deal isn’t the only one. Just a few weeks ago, TWTR purchased Namo Media, which develops technology to create native ads — advertisements that essentially blend into the user experience of an app.
But the engineers at Twitter are also building some cool systems, too. This week, the company launched its mobile install system, which allows users to click an ad on the newsfeed and launch a mobile app. For this, TWTR gets a fee. Keep in mind that mobile install ads have been a key to the growth in revenue for Facebook.
But for TWTR, TapCommerce could play significant role with mobile install ads. For example, after a user downloads an app, TWTR will send out re-engagement ads to keep up the interest. Along the way, the company will be collecting more and more revenue.
All this points to a smart monetization strategy. However, the fact remains that user growth remains in doubt, as seen during the past couple quarters. While the World Cup may provide a boost, it will only be temporary. Yet there isn’t much else that TWTR has done to pump things up.
So, despite all the mobile dealmaking we’ve seen from Twitter recently, investors should be wary of Twitter stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.