Forget Twitter Inc Stock and Buy Amazon.com, Inc. Instead

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TWTR stock - Forget Twitter Inc Stock and Buy Amazon.com, Inc. Instead

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A Twitter Inc (NYSE:TWTR) short recently wrote about Twitter co-founder and former CEO Evan Williams selling two million of his directly held shares of TWTR stock.

The short’s argument was that Williams wouldn’t be selling almost 50% of his direct ownership position (he also controls millions of shares through a venture capital fund) if the Twitter director didn’t think the sun was setting on the company.

In other words, get out while the getting’s good.

Why? (and here’s where it gets interesting) Amazon.com, Inc. (NASDAQ:AMZN) is taking advertising business from Twitter.

THAT made me take a closer look at the subject. Seriously, why invest in TWTR stock when you can get all the good things AMZN has to offer plus a growing ad business, which is not something CEO Jack Dorsey can argue?

Inside Amazon’s Ad Business

Although the company doesn’t specifically break out its ad revenues in its quarterly report of net sales by products and services, it does say that its “Other” revenue includes advertising services and the company’s co-branded credit card agreements, so you can get pretty close.

In the nine months through Sept. 30, Amazon has $2.9 billion in other revenue, a 55% year-over-year increase. In Q3 2017, other revenue increased by 58%.

“Advertising revenue continues to grow very quickly and its year-over-year growth rate is actually faster than the other revenue line item that you see there,” Amazon CFO Brian Olsavsky said in the company’s Q3 2017 conference call. “But I would say, generally, we’re very pleased with the advertising business.”

No kidding.

Amazon uses the advertising to help its e-commerce customers make better purchasing decisions which leads to the further padding of its lead in online retail while delivering higher margins than it’s used to.

It’s a win-win.

Infographic: The State of the U.S. Advertising Market | Statista Source: Statista

How Big IS That Business?

By revenue, it’s still the smallest of Amazon’s businesses, but it’s coming on — other revenue accounted for 2.6% of the company’s $43.7 billion in Q3 2017 revenue — and where it ends up is anyone’s guess. eMarketer suggests Amazon’s digital ad revenues could hit $3.2 billion by 2019, up from $1.7 billion in 2017.

 

However, that could prove to be very conservative based on Olsavsky’s comments from above.

eMarketer has Amazon’s ad revenue growing by 48.2% in 2017, 42.0% in 2018 and 36.0% in 2019. Olsavsky said its ad revenues in Q3 2017 grew by more than 58% so let’s assume 60% to be conservative.

At the same rate of slowing growth, as eMarketer projects, Amazon’s ad revenue will grow 52% in 2018 and 45% in 2019. The unknown variable is what percentage of its other revenue is from advertising and not credit cards.

Let’s assume that it’s 50%.

Based on annualized Other Revenue of $3.9 billion, its 2017 ad revenue would be $1.9 billion and $4.3 billion in 2019, or 34% higher than eMarketer’s estimate by the end of the next two years.

How’s It Compare to Twitter?

Analysts expect Twitter’s revenue to be $2.54 billion in 2018, $140 million or 5.4% higher than the estimate for 2017. Assuming it grows by 10% in 2019, Twitter’s revenue will be $2.8 billion, less than Amazon’s annual revenue — and Jeff Bezos isn’t even trying to make it a competition.

Let’s assume Amazon starts to consider advertising a profit center. That’s going to do tremendous damage to Twitter’s business and the value of TWTR stock.

Adweek recently noted that some 63% of U.S. brands that are now advertising on Amazon plan to increase their spend on the platform over the next year. “Meanwhile, 54% of the same group of brands said they planned to up their Google budgets, while 53% planned to beef up Facebook. Another 27% of advertisers said they planned to invest in Bing” and 23% singled out Twitter for additional spending, wrote columnist Lauren Johnson.

This is hardly good news for Twitter.

Bottom Line on TWTR Stock

TWTR stock might be up 20% year to date but it pales in comparison to Amazon’s 51% gain over the same period.

No wonder Evan Williams is selling out. The game will soon be over for Twitter and he knows it.

Forget TWTR stock and buy AMZN shares. You’ll be happy you did.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/forget-twitter-inc-stock-and-buy-amazon-com-inc-instead/.

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