TWTR Is Showing Ads to Logged-Off Users; Time to Buy Twitter Stock

Twitter stock will surge as this new source of revenue ramps up

Twitter (TWTR) stock jumped more than 5% today in response to news that it will now start showing advertisements to its “logged out” user base.

TWTR Is Showing Ads to Logged-Off Users; Time to Buy Twitter StockEver since Jack Dorsey took over as CEO, monetizing its logged-out user base has been high on his list of priorities, and now that the plan is in place, it is time to buy TWTR stock.

TWTR Solves Its Big Problem

The big knock against TWTR over the last year is that its monthly active user growth has slowed drastically. Ultimately, a social media platform’s upside is tied to the number of people who use the platform. It is that large platform that attracts advertisers and gives the social media platform pricing power over those advertisers.

The problem for TWTR is that it has been stuck with quarter-to-quarter MAU growth of just 1% to 5% for more than a year.

At one point Twitter was seen as the No. 2 social platform, behind Facebook (FB), but with 320 million MAUs, it has been bypassed by several platforms worldwide and user engagement is a constant question. As a result, Twitter stock had fallen by 30%-plus over the last six months as these questions and concerns have taken center stage.

That said, Twitter has offered a solution and reason for its growth problem. According to Twitter, there are another 500 million users worldwide that don’t actually have a Twitter account but see tweets on a regular basis. Twitter’s solution to growth fears is to monetize this logged-out user base.

Up until now, investors have not bought into the notion of Twitter successfully monetizing this user base. The fact that Twitter shares jumped 5% on Thursday proves that investors are happy to hear this new plan.

Logged-off users see tweets on Google search results, websites, apps, etc. What Twitter plans is to deliver Promoted Tweets within these third-party platforms, and according to the company, it will generate revenue from this user base at about half the rate it does with logged-in users.

In other words, revenue from logged-out users won’t be as much as logged-in users, but with nearly twice as many logged-out users, TWTR has a great chance to create significant revenue by making this move.

Why Twitter Stock Is Now a Buy

One thing to keep in mind is that Twitter stock is nearly 65% off its post-IPO high and is a company whose stock can see major moves after issuing guidance or announcing earnings. If Twitter can really earn revenue from logged-out users at half the rate of logged-in users, and has twice as much of the former users, then this suggests that TWTR will significantly outperform forward-looking earnings expectations.

This year TWTR is expected to grow revenue 58% to $2.22 billion, and grow another 41% next year. Now that TWTR is adding another 500 million users to the monetization mix, there’s a good chance that 41% growth next year can become 45% growth, or more.

Therefore, given the big losses in Twitter stock, combined with the earnings potential from monetizing another 500 million users, investors have to like Twitter stock’s chances to trade much higher in 2016.

With just one move, Twitter stock went from questionable to promising, and investors should like what this move could do for the company and its stock price.

As of this writing, Brian Nichols owned shares of Twitter.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/twtr-showing-ads-logged-off-users-time-buy-twitter-stock/.

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