Users are starting to come back to Twitter, Inc. (NYSE:TWTR). In the third-quarter, the company reported six quarters worth of growth in daily active users, and in the last four quarters growth rose in the double-digits. TWTR stock has a real chance at improving its value.
The micro-blogging site’s 280-character limit increase is not the only highlight coming from the company. Advertisers are coming back and content is increasing on Twitter.
TWTR stock prices fell by a meaningful amount in the third quarter, down by over 40 percent year-on-year. The cost-per-engagement fell as the mix shifted. This gave the audience size a lift while lowering costs for advertisers.
Twitter spurred demand for its products by improving their performance. It cut services that neither offered value to its customers nor performed all that well. To be clear, the advertisers are its main customers.
Of all the products Twitter has to offer, Twitter Video is gaining the most momentum. Within it, advertisers have four different “view” options to choose from.
TWTR Stock Outlook for 2018
Twitter, as a matter of policy, does not give revenue guidance but does believe its focus on giving advertisers the right value will pay off. It is still in a turnaround phase, so it is diversifying its revenue, and communicating its best offerings to its partners.
Already in the third-quarter, Twitter’s top 100 advertisers globally rose 23 percent from last year. Business for its Data Enterprise Solution also picked up the pace, suggesting that Twitter’s revenue diversification will go up.
Simplifying the Product
Twitter made inroads in simplifying its self-service channel. Through what is essentially a subscription product, customers may buy the product without having to do much more in developing the ad campaign:
“We’ve also made investments on onboarding and we’ve made investments in a new subscription product that for $99 you don’t have to pick what ad formats you want to use on Twitter. We do all that for you.” — Source: Seeking Alpha
Twitter also tweaked its campaign set-up experience. It made it easier for its advertising customers to launch more effective campaigns. This resulted in better conversion rates for new advertisers. Average revenue per advertisers improved.
As the company continues adding innovation to its products, advertisers benefit with the better ROI, which will bring in more customer spending. This should translate into an upside for TWTR stock.
In the technology world, many companies in the space talk about Artificial Intelligence. But Twitter is applying AI by adding more personalization across the board.
It does so by using machine learning and deep learning algorithms to the tweets posted on its site. By inferring the user’s interest, Twitter may match appropriate advertorial content in hopes of generating a click.
TWTR Stock Valuation
Finbox.io users modeled a fair value for TWTR stock in the range of between $15 to around $24, on average. If Twitter outperforms its historical growth rate by increasing its earnings in the double digits, then Twitter’s fair value could be between $20 to $27 a share.
A Gordon Growth Exit model assumes that Twitter’s revenue will grow by at least 10% in the last two years (2020 – 2021).
Twitter’s strong quarter gives shareholders some hope that TWTR stock will not fall back to the teens for a while. As Snap Inc. (NYSE:SNAP) struggles to grow its user base at historical rates, Twitter’s getting users to come back to its site.
It still faces pressure from Facebook, Inc.’s (NASDAQ:FB) Instagram but Twitter’s assortment of tweets, videos, images, and live video sets it apart.
Disclosure: The author has a DIY Value Investor Newsletter and does not hold any of the stocks mentioned.