Twitter Inc (NYSE:TWTR) has been banned in China since 2009. Yet the company thinks there is still money to be made from the country. To this end, TWTR has established an office in Hong Kong.
So is this just a case of wishful thinking? Or could the move help Twitter stock?
Well, first of all, it still looks fairly experimental. Hey, the Twitter China office has only one employee for now (executive Peter Greenberger).
But there still appears to be lots of opportunity. As noted in a report by Financial Times, many global China companies have no presence on Twitter, including PetroChina Company Limited (NYSE:PTR), Baidu Inc (ADR) (NASDAQ:BIDU), China Vanke Co., Ltd., and Fosun International Limited. And others have just minimal activity, such as the International and Commercial Bank of China.
Then again, with aggressive sales efforts, TWTR should get traction. For the most part, it’s a good bet that China companies will see Twitter as a way to pump up growth in foreign markets. The micro-blogging platform has 288 million monthly active users that send about 500 million Tweets per day. Oh, and 80% of them are on mobile devices.
But the big attraction for Chinese companies with Twitter is the real-time nature of the advertising. For example, it is cost-effective to get visibility during sporting events or major concerts or awards ceremonies. This plays to the “two screen” phenomenon, which is when people tweet while watching television. This is why TWTR has been ramping its online video business, such as with the recent acquisition of Periscope (a top provider of live-video streaming).
TWTR has also been building is mobile infrastructure. At the heart of this is a platform called Fabric, which allows third parties to make mobile apps with key components for logins, storage and analytics. No doubt, the system could provide a way for grabbing more ad dollars.
Now it’s tough to gauge the potential impact of Twitter stock from China. But there is certainly lots of room to fill up the company’s coffers from global advertisers. Keep in mind that in the last quarter, about 64% of total ad revenues came from the U.S.
But this does not mean you should rush to buy Twitter stock. The fact is that the Twitter China initiative will likely take time to get critical mass. The company will need to staff up its operations and then sell to major companies, which is no easy feat. For the most part, this will mean lots of experimentation in the early stages.
However, over the next few years, Twitter China could be a nice part of the revenue mix. And yes, this will definitely critical. After all, to justify the high valuation of Twitter stock — which is currently trading at 57x forward earnings — the company will need to remain highly focused on monetization.
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.
