Key Takeaways From Twitter’s Recent Investor Presentation

Twitter (NYSE:TWTR) recently participated in the Deutsche Bank Technology Conference and provided a few updates on its business. ^[1] While the CEO search process seems to have no end at sight, some comments were provided on other aspects of the business. Specifically, we may continue to see slow growth in Twitter’s user base over the next few quarters, until the company’s anticipated product and marketing efforts start yielding results. Simultaneously, Twitter’s engagement, as measured by daily active users (DAU) to monthly active users (MAU), seems to be declining, owing to the addition of fewer active users on the platform. This, along with slowing user base growth, could potentially impact growth in advertising revenues on the platform, as ad supply could become limited at certain periods. Twitter is expected to introduce broad product changes coupled with large-scale marketing efforts by fall this year, and we look forward to see the impact of this change on both new user additions, as well as on engagement of heavy users on the platform.

See our complete analysis for Twitter

Key Updates From The Conference:

1. CEO Search Process: There seems to be no end in sight for the CEO search process at Twitter. Recently, one of the company’s key investors, Chris Sacca, came down heavily on the Board for going slow in its search process (which is currently in its third month), and supported Jack Dorsey’s permanent appointment to the role. ^[2] No comment was provided by the company’s CFO on the issue. Given the present level of uncertainty, it could still take a few months for the board to finalize a new CEO.
2. User Base Growth Could Remain Slow In The Near Future: Growth in MAU count on the Twitter platform could remain slow in the near future, until Twitter’s efforts to reach the mass market begin to show progress at the end of this year. Yet, the company’s CFO suggested that Twitter’s total audience (comprising of both logged-in and logged-out user base) could even be higher than Facebook’s user base of 1.4 billion users. While this may be true, we believe the bulk of monetization opportunities will come from the logged-in user base over the coming years (given the ability to market more effectively to this audience). In addition, Twitter’s daily active user (DAU) to monthly active user (MAU) base, which stands at around 44% in the top 20 markets, has seen a downtrend recently as newer users are less active on the platform.
3. Marketing Activity Expected To Pick Up Significantly: Twitter’s marketing activity is expected to ramp up significantly in the fall. This will encompass advertising on various fronts, including television, video and various forms of digital marketing in order to bring the next cohort of users to the Twitter platform. Simultaneously, product changes such as Project Lightning, which is based on the curation of live content, will be rolled out to communicate the value proposition of Twitter more effectively. While the previous product changes have failed to propel MAU growth on the platform, we are eager to see the impact of these changes.
4. Ad Load Levels Remain Low, Could Spike Sporadically: Another interesting fact that came out of the conference is that while the overall ad load levels (on an yearly basis) remain low on Twitter as compared to more mature social networks, it could swing widely for some users depending on the day and the mix in advertising formats. This is because certain advertising formats – such as mobile application downloads – require higher inventory, which impacts the ad load levels. Accordingly, these supply issues could cause future growth rates in the advertising business to slow down, in the event that Twitter’s user base does not begin to grow at a faster pace.
5. Future Potential: At the Investor Day Conference held last year, Twitter had pegged its total monetization opportunity at around $11 billion annually. During yesterday’s conference, the company’s CFO reiterated the same target, though he did admit that the company could take longer to achieve these targets. We believe Twitter has a significant long-term opportunity ahead and given its real-time network, it could leverage its competitive advantages to grow at a faster rate in the future.

Our $38 price estimate for Twitter’s stock is over 30% ahead of the current market price.

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1. Twitter (TWTR) Presents at Deutsche Bank 2015 Technology Brokers Conference (Transcript), Seeking Alpha, September 16, 2015 [↩]
2. Enough Is Enough, Make Jack Dorsey CEO Already, Says Major Twitter Investor Chris Sacca, Tech Times, September 14, 2015 [↩]