Twitter: The Real Catalysts

| About: Twitter, Inc. (TWTR)

Summary

Recent M&A speculation has helped Twitter shares this week.

Instead, it is the advent of the Summer Olympics and the NFL season that can provide Twitter positive momentum.

New ad tools and increased international advertiser interest may help the stock.

There has been a strong theme in the financial press about the strong week Twitter (NYSE:TWTR) has been having ("Twitter shares still getting LinkedIn bump"). As you might have guessed from the headlines, speculation tied to Microsoft's proposed acquisition of LinkedIn has many wondering whether Twitter may be next to be acquired by a company seeking a social media play. Some suitors like Google (NASDAQ:GOOG) (NASDAQ:GOOGL), News Corp (NASDAQ:NWS) (NASDAQ:NWSA) and even Facebook (NASDAQ:FB) have been tossed around as names that could be hungry for the $11 billion dollar company.

But rather than focus on M&A rumors, we would like to point investors to some near-term catalysts that can bring the company some great headlines, high engagement, more ad dollars, and hopefully the admiration of the street: the Olympics this summer and the NFL season this fall.

For historical context, we would like to try to draw comparisons to 2014's World Cup and Sochi Winter Olympics.

2014 World Cup

The World Cup was a 32-day, 64-match marathon that saw users log 672mn tweets. Twitter did add a disclaimer though, explaining that

"[w]hile this is the highest number we've announced related to an event, it's hard to compare the 32-day, 64-match World Cup to, for example, the single-game Super Bowl, the one-night Oscars, or the 16-day Olympics."

At the time, Twitter's MAU clocked in around 270mn, where roughly 10% more (approximately 300mn MAUS) use Twitter today. Events like the World Cup are in Twitter's wheelhouse because of their live nature. Additionally, we saw international monetization spike in the earnings report immediately after the World Cup (which at the time was a 168% Y/Y growth). Indeed, Mike Gupta commented on the earnings call that "[s]trength in our advertising business is broad-based across all channels and geographics with particular strength in international markets due to strong advertiser demand around the World Cup." So we see Twitter management excited about high engagement and the curated Twitter experience, increased international numbers, but immaterial impact on MAUs. We believe it would be wise to expect the same from the 2016 NFL and Olympics events.

2014 Sochi Winter Olympics

Although Twitter was not yet a public company during the 2012 London Olympics, luckily we have the 2014 Winter Olympics in Sochi to draw some comparisons for the upcoming summer games. Similar to the World Cup, we can expect stronger international ad demand during events like these. And in fact, that is exactly how Mike Gupta characterized it on the earnings call: "[w]e saw strong advertiser demand around live events in Q1, including the Super Bowl, the Olympics, the Oscars and the Grammys" with "very strong growth in ad engagements, up almost 700% Y/Y and 28$ Q/Q." both the Winter Olympcs and the World Cup drove strong demand and ad monetization in their respective quarters, can we look to the Summer Olympics and NFL season for the same?

2016 Rio Olympics

In the latest earnings call, we already saw management hinting towards two main facets of the summer games: first that international advertisers seem to be keeping powder dry for the games, and second that video and video advertising will play an important role . CEO Jack Dorsey commented in April's call that "as we think about whether it's the Olympics or the elections or things like the Euro League championship, there is a huge opportunity for consumers on twitter to see really relevant content now and certainly marketers and content partners to have access to new products and features they didn't have the last tie each one of these events happened. During these events, it's really when Twitter shines for marketers." Indeed Twitter is a more mature company with more offerings than it was during the 2014 Winter Olympics, and especially compared to the 2012 London Olympics, including millions more MAUs. The international aspect to the event is likely to signal similarities with the 2014 World Cup - namely stronger demand from advertisers internationally. Adam Bain on international spend during the last quarter: "We look internationally and we saw across Europe some marketers who held back spend in the first half, holding it back for the Olympics…" We believe this situation may provide a "coiled spring" effect for Twitter's international revenue growth and look favorably to the Olympics as a catalyst for the stock.

We would like to remind readers of our stance on the ill-advised fixation on Twitter's MAUs - the World Cup "didn't really add to the MAU net ads, it helped drive engagement…you don't really see that [Twitter] benefited from new MAU growth because of the World Cup." It stands to reason that the forthcoming Olympics and NFL season may not meaningfully goose MAUs higher either. So we don't expect a surge in MAU growth but instead an increase in international advertiser spend.

2016 NFL Thursday Night Football

The first response many had to the NFL deal with Twitter for rights to the 10-game TNF package was surprise at the price: Twitter paid roughly $10mn, though CBS and NBC will also broadcast the games. When discussing the deal in the latest earnings call, we found another nugget of positivity as well; according to Jack Dorsey, "almost every league in the world contacted us, because they want to provide an even better experience for their fans." So at the outset, if the NFL deal leads to more professional sports leagues inking similar deals with Twitter, we view that as a positive catalyst for the company.

Secondly, we are very interested in the new tools and features that will be rolled out coinciding with the NFL deal. For Twitter, "[l]ive is where - is what's most valuable in the ad business. So, to make us even more powerful, we are working on some video tools. These are things like reach and frequency planning, demographic targeting and verification, which will rollout this coming fall to coincide with our NFL deal of our live streaming strategy." The expansion of live video is ultimately a great sign, as competitors like Facebook (Nicola Mendelsohn, a VP at Facebook, recently commented that FB will "be probably all video" over the next few years." The advent of celebrities and public figures on Twitter, including sports stars, makes the social network an important ally for the NFL. Twitter views the deal as a "live solution" since it can "bring the live streaming game into the product with that live commentary, those live conversations [as a] complete solution."

Conclusion

The new features to be launched, with the cementing of Twitter as a place for live events like NFL and Olympics, provide the company some positive catalysts as we go forward to the summer and fall months. Again, we do not expect large MAU growth (though a meaningful bump could also serve the stock well since Wall Street seems resigned to the fact that growth as stalled). Instead, we hope for stronger international ad spend as well as increased interest from sports leagues and other live events on the heels of the NFL deal and the new features being rolled out

Disclosure: I am/we are long TWTR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.