Can Twitter’s Sports Strategy Provide Its Revenues The Much Needed Boost?
Reports suggest that Twitter (NYSE:TWTR) has entered into a video distribution and ad deal with Univision and Fox Sports where both the broadcasters will deliver short clips to Twitter’s platform from the Copa America soccer tournament. The video highlights are being posted to Twitter during the games real time and they carry six second pre-roll ads from seven different global advertisers. The deal is part of the Twitter Amplify Program which the company has been running with partners for the past three years. As digital video advertising gains momentum, Twitter is looking to maximize this revenue opportunity by focusing on important sports events. Earlier this year, the company had won the rights to broadcast ten NFL (National Football League) Thursday night games. As an increasing number of young viewers in the U.S. move away from traditional TV, online viewership of sports events is on the rise and Twitter can gain from this trend. We believe broadcasting clips and highlights of sports events on its platform can improve engagement levels on Twitter. This is an area where the company is struggling, while players such as Facebook and Snapchat are growing their user bases.
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Better Accessibility, Social Sporting Experience Attracting Viewers To Social Media Platforms
According to Jo Porter, a senior executive at sports and entertainment agency HSE Cake, in broadcasting sports live, social media networks are pulling all elements of the next generation sporting experience into one platform. These include viewing, gaming and real time commentary. This will deepen the engagement beyond traditional linear experience and bring larger audiences to these sports. Apart from creating an “overall social sporting experience” around sporting events, social media platforms also improve accessibility to view these events live. Twitter’s clips can be watched on a mobile device on the go, making it easier for viewers to watch live highlights even if they are travelling. Competitors such as Facebook and YouTube are also looking to capture this trend as live sports hold a strong potential for social media networks. YouTube recently secured a deal with British TV to live stream the UEFA Champions League. Live sports broadcast could become the next differentiator for a social media networs and the ability to secure deals for the most popular sporting events and create a social experience around them will be a key for success. While Twitter appears to be working in this direction, whether the company will be able to develop a competitive edge in this space remains to be seen.
According to our estimates, the U.S. Advertising segment accounts for nearly 50% of Twitter’s valuation. We expect the number of timeline views per U.S. monthly active user to increase moderately from 225,000 in 2016 to 236,000 by the end of our forecast period.
As Twitter moves towards broadcasting sports events and clips on its platform and creates a social experience around them, it should see an increase in engagement. Higher user engagement, in turn, will impact Twitter’s valuation positively. If the number of timeline views per U.S. monthly active user increases to around 280,000 by the end of our forecast period, there can be a 10% upside to our price estimate.
Twitter is struggling to engage users and attract advertisers to its platform. While it is trying to find a unique selling proposition, (i.e., something it could be “known” for), broadcasting live sporting events should hold strong potential. If the company is able to execute its sports strategy effectively without impacting costs significantly, it can become the “go to” place for a social sports experience.
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