The bull case for Twitter Inc (NYSE:TWTR) simply won’t die. With user growth on the platform stalled and the company unprofitable when accounting for the millions of shares issued to employees, TWTR stock bulls have turned to a new driver: video.
To be fair, it’s not just stockholders turning in that direction. COO Anthony Noto, described as the “de facto day-to-day leader” of the company as CEO Jack Dorsey does double-duty with Square Inc (NYSE:SQ), is pushing the company heavily in that direction. The company began with a $10 million deal with the NFL, a contract it lost this year to Amazon.com, Inc. (NASDAQ:AMZN). But a series of deals with entities ranging from the WNBA to the Pac-12 to Bloomberg show an increasing emphasis on adding video to the Twitter platform.
I remain highly skeptical that strategy will work for TWTR stock, as I wrote last month. But I’m even more skeptical of recent arguments that Twitter could become a real player in video, rather than simply adding more video as a complement to its existing service. BTIG analyst Rich Greenfield argued last week that Walt Disney Co (NYSE:DIS) should acquire Twitter to offset the deeply held concerns about its ESPN unit.
The implication is that Twitter can become a destination for viewers. But that seems exceedingly unlikely for a number of reasons.
The Branding Problem
The most obvious problem is that it’s pretty difficult for a company with 328 million monthly active users to just ‘pivot’. Twitter has a brand, and while user growth is slowing, it does seem like its base is committed. Engagement is increasing as well, with daily active users increasing double-digits over the past four quarters.
The extent to which President Donald Trump’s extensive use of the platform helps those numbers is up for debate. But it’s not as if existing followers are crying out for more video – or news and sports highlights, as planned under some of the recent partnership. For better or for worse, Twitter’s role in the social media ecosystem is reasonably well-defined. Video is used for clips and GIFs – not long-form viewing. Consumers have plenty of options elsewhere.
The Competition Problem
Again, plenty of options. Netflix, Inc. (NASDAQ:NFLX) has carved out its niche in recorded content, clearing 100 million subscribers in its Q2. Hulu and Amazon Prime are competing for eyeballs there as well.
In live content, there might be an opening. But news and sports networks, including Disney’s ESPN, already offer online apps through cable companies like Comcast Corporation (NASDAQ:CMCSA) and Charter Communications, Inc. (NASDAQ:CHTR). AT&T Inc. (NYSE:T) offers streaming through DirecTV Now. So does Sony Corp (ADR) (NYSE:SNE) through PlayStation Vue. Literally dozens of other live streaming services, whether ‘bundles’ or single-network offerings, are available or will be soon.
As for the Disney speculation, the company already has increased its stake in BAMTech, a potential precursor to a standalone ESPN streaming offering. There’s simply no room for Twitter in this already-crowded ecosystem, at least not without a much, much larger degree of investment.
Will TWTR Stock Holders Pay Up?
If Twitter is going to become a major player in video, the current strategy isn’t going to cut it. The company is going to have to invest heavily.
There’s no sign the company actually is interested in doing that, which raises the question (again) of how it’s supposed to compete. Netflix is investing billions in content, to the point that many investors fear the stock is overvalued for exactly that reason. Amazon is spending. Facebook Inc (NASDAQ:FB) is even getting in the game.
The idea that Twitter will have a role in that ecosystem requires something close to delusion. Twitter is going to earn millions in profit on the back of second-tier, licensed content. It’s going to grab video eyeballs while better-funded competitors spend wildly to gain share. It’s going to pivot from 140-character messages to 30- and 60-minute video content.
If all those things happen, maybe there’s a chance for Twitter stock. It seems unlikely, however. So does any upside for TWTR stock.
As of this writing, Vince Martin has no positions in any securities mentioned.
