Twitter: The NFL Deal As A Foundation For A Live Future

| About: Twitter, Inc. (TWTR)

Summary

Since announcing a deal to stream 10 Thursday night NFL football games, total shareholder return for Twitter has continued to drop.

The partnership, and similar future ones, make sense given Twitter’s user base and live approach to content.

If Twitter can provide a robust user experience and bring in more live events it could present far more leverage in future monetization opportunities with other partners.

When the NFL chose Twitter (NYSE:TWTR) over other bidders, including Yahoo (NASDAQ:YHOO), Amazon (NASDAQ:AMZN) and Verizon Communications (NYSE:VZ), to stream 10 Thursday night NFL football games for the 2016 season, it turned down higher bidders. So how did Twitter get selected by the NFL over higher offers?

The NFL's executive vice president of media, Bryan Rolapp, cited interest in combining live events with live content discussion:

The platform is built around live events already. We want to see how they use the unique platform, and syndicated tweets all over the Internet is going to be interesting.

Also drawing the NFL to Twitter (and the aspect that makes the live aspect particularly important) is the demographic profile of the Twitter user base.

Twitter has often been considered a younger crowd's platform. In 2015, Pew Research found that 32% of Internet users aged 18-29 used Twitter, along with 29% of Internet users aged 30-49. This pales in comparison to Facebook (NASDAQ:FB), who maintained bases of 82% and 79%, respectively, among the same age groups. So, Twitter is young, sure, but not nearly as dominant among the young as Facebook. Other bidders could handle the logistics of streaming and provide their own large user bases.

However, Twitter holds two key advantages. One, of course, is that it is more of a live content experience. Just as importantly, though, it is the social networking site of celebrities, including athletes and, by extension, their most avid fans. The NFL on Twitter will include a live stream of interaction between players on other teams, fans, celebrities and analysts. It already happens in games all the time, but now a user will be able to stay engaged with the game while interacting with others on the platform. This makes the act of tweeting more of a complement to the game itself rather than an action for commercial breaks. It takes the live stream that is Twitter's traditional wheelhouse and adds in the very live events that are the life of the platform's interactions. This comes at a time when those in the youngest age brackets are deciding whether to buy into television at all, or to just stick with alternative services like Netflix (NASDAQ:NFLX) and HBO GO. One of the natural allegiances to traditional television is the exclusive ability to see live events, but those licensing these events may find they are better suited engaging these younger users on their preferred platforms, rather than trying to force a portion to traditional television and risking losing them.

A main criticism of Twitter since its move public has been the inability to sufficiently monetize its platform. Twitter's total shareholder return has been subpar, closing Monday down 68.17% from the time of the company's IPO. Did investors see the NFL deal as a gateway to monetization? Not in any significant way, based on the changes in shareholder return since the deal's announcement. On April 4th, the day before the deal was announced, Twitter closed at a total shareholder return of -61.94%, and has only gone more into the red since the announcement.

Exhibit 1: Total Shareholder Return for Twitter since IPO

Source: Enlight Research

The continued drop of shareholder return shows just how little investors think about the monetization of the announced NFL deal. The NFL will show its own advertisements during the game, with Twitter only controlling and receiving revenue from live stream advertising and some advertising before and after the game. The live stream advertising will likely be restrained to not drive away users at their point of engagement. This minimal advertising does not look likely to be the revenue model that bolsters Twitter. However, it is a beginning. Twitter's live event experience needs to grow from this, and the revenue model needs to eventually shift.

Amidst the deal, Twitter reported it fell short of revenue expectations in its 1Q report, but did sound focused on this live streaming growth. CEO Jack Dorsey quickly emphasized that other leagues ("almost every league in the world" as he described it) are interested in working with Twitter. The company has pushed even farther on hosting a wider range of live events, floating the idea of live streaming the US elections and the upcoming Olympics. It's safe to assume that award shows and other large live events could also be in the mix.

In the world of cord cutting and evolving decisions on where to access content, Twitter is not often mentioned as a major player in the battle for markets. Perhaps that sentiment is about to change, as Twitter can fill a significant and natural role as a content partner for live events attempting to target a younger crowd that is increasingly open to consuming television via alternative platforms. If it can build a strong enough base in this field through a solid product and continued partnerships, Twitter could find itself in a position to leverage its live-focused consumer base for substantial monetization opportunities.

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Research support by Enlight analyst Davis Fussell.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

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