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  • A Sensible Approach To Investing In Twitter, Inc. (TWTR) This Year 2 comments
    Jan 10, 2014 1:53 PM | about stocks: TWTR

    Twitter has been "all the rage" for the last six weeks as the company's stock has soared more than 150% since its initial public offering. Given that the stock has increased in value so dramatically while still not generating any profits is both impressive and scary. How should investors approach the company in 2014 if interested in the stock?

    Twitter had phenomenal revenue growth from 2011 through 2012 when it jumped almost 200% to just under $320 million. At the same time, the company's losses increased by almost 40% to $79 million. As of September 30, 2013, the company generated roughly $168.6 million in revenue but also ended up losing approximately $64.6 million. With this in mind, what do investors see in this company?

    Revenue from the company is generated from two sources:

    • Advertising

    • Data licensing

    Investors have to be jumping on momentum presently. Short term, the company has grown from about $40 a share at the end of November to just under $70 a share in early 2014. That is remarkable growth in such a short period of time. But there is a reason why.

    Mobile Advertising Speculation

    Twitter recently set a record for the value of the stock three days in a row because of optimism that the company could see greater growth in its mobile digital advertising. The optimistic view of tech investors has helped the company derive a market cap of close to $40 billion since its public offering.

    So what are investors betting on? Here you have a company that is not generating a profit but investors are pouring money into it like white on rice. As companies look to market their products through wireless services and ties with television programming, investors believe Twitter is going to attract a lot more ad dollars.

    Unproven Revenue Stream

    It is not surprising that 91% of Twitter's revenue comes from advertising. It is common among social media companies to have a bulk of their revenue coming from this particular source.

    Also common in the industry is that advertisers do not have long-term commitments which makes long-term "revenue stability" a hard task. One of the challenges that the investor has to deal with is that the companies advertising agencies promote are selling an "unproven" commodity.

    There is nothing surprising about this since Twitter just went public and advertising dollars need to translate into revenue for the companies that are paying for advertising, or things could fall apart for the Twitter very quickly. This is not a prediction as much as a conservative approach to understanding corporate risk that Twitter has.

    The company's other revenue source, data licensing, is a mere 9% of revenue which actually dropped by 17% from the second quarter. As total revenue increases, Twitter expects this source to decrease (percentage wise.)

    More money is going out than is coming in and the company plans on spending more on research and development which accounts for about 40% of its entire expense sheet. It appears Twitter is going to be reliant on more and more advertising to cover its expenses.

    This is what Investors should be Aware of

    Because revenue is growing so quickly and the company continues to spend more to catch up, investors believe there is a huge potential for the company to dominate a good portion of mobile and TV advertising markets. Because of this speculation, common sense investing is no longer applicable to Twitter. Valuation is irrelevant at this point and speculation that Twitter will become the next great media monopoly platform is why money is going into it right now.

    A Sensible Approach to Investing in Twitter

    From a conservative investing viewpoint, the stock is not worth the risk. But if someone is interested in investing in the company, the stock should be considered a high risk and highly speculative investment.

    MissionIR provides investor relations services to publicly traded companies in exchange for compensation. This article may be part of our efforts to widen a client's exposure. To read our full disclaimer, visit http://disclaimer.missionir.com

    Stocks: TWTR
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Comments (2)
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  • During an election season Twitter will definitely be on fire. For those into politics, being up to the moment informed--- Twitter is IT. I bought a small amount in increments, adding as going down 5-10%.
    Its the stock to have --- for me!
    10 Jan, 04:17 PM Reply Like
  • I just want to add that some of the ads I've happened upon Twitter are pretty entertaining. This one from Corning Glass:

     

    http://bit.ly/1cLEdSL

     

    Most people totally ignore the ads on Facebook -- are mostly annoying. But on Twitter they are part of the play!
    10 Jan, 04:59 PM Reply Like
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