Why Innovation Is Key For Twitter?

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TWTR: Twitter logo
TWTR
Twitter

Twitter‘s (NYSE:TWTR) stock price declined by about 45% over  since its late April high and its Q3 2015 results failed to meet investor expectations in terms of user growth and engagement. Twitter is facing challenges in attracting and retaining new users to its platform, which could threaten its revenue growth in the future. The company recently reorganized itself with high level management changes and trimmed around 8% of its workforce primarily to cut costs. The new CEO Jack Dorsey is focusing on product changes as well as realizing these changes at a faster pace. We believe innovative feature and offerings to drive user engagement and attract new users will be the key factor for Twitter’s future growth.

See our complete analysis for Twitter

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More Products Such As “Moments” Will Increase Traffic And User Engagement

In October 2015, Twitter launched Moments — more popularly known as “Project Lightning” — which allows a user to see the best around Twitter on a real time basis, in terms of news, events and TV shows, with a click of a button, without the need to follow individual accounts. This is an exciting innovation by Twitter, and we expect this to increase user engagement. Embedded tweets are another significant way for Twitter to spread its reach beyond its user base. According to the company, embedded tweets reach a billion people worldwide, monthly. It announced a new curator tool as well as a new collections interface to make it easier for users to find and publish a series of tweets, which would increase their reach.

The key competitive advantage of Twitter is its real time news, and its ability to spread this over a wider audience through innovative techniques should attract more users. We expect Twitter’s U.S. monthly active users to cross 100 million at the end of our forecast period and the international user base to be more than 400 million by 2020. There could be a significant upside in our price estimate if this figure exceeds our expectations.

Twitter has made changes to the “Vine” platform by adding music and has also modified the “Periscope” platform while adding “Highlights on Android Polls” as another new feature. After launching auto-play videos, Twitter has seen high growth in video consumption. This directly impacts video ads on the platform and should have a positive impact on the launch of “Promoted Moments” (sponsored videos) later this year. In a dynamic social media environment where competitors such as Facebook are continuously tweaking their platform and adding features to increase user engagement and convenience, Twitter has a lot of catching up to do. While the impact of these innovations will be seen in the future, we believe these to be the key driver for Twitter’s revenue growth.

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