Twitter (NYSE:TWTR) has recently ran up in price from around $18 to $25 due to buyout rumors (suitors including Google (NASDAQ:GOOG), Salesfoce.com (NYSE:CRM), Microsoft (NASDAQ:MSFT), and Disney (NYSE:DIS)). Now that those rumors have come to rest, the stock price is lower than $17 which is even lower than pre buyout levels. I believe this is a good time to buy as Twitter's stock price is discounted and does not accurately reflect the value of two of its potentially largest streams of revenue: live streaming and data monetization through Gnip.
The most lucrative and high profile streaming deal Twitter has secured is the rights to live stream 10 games for $10 million total with the NFL. Twitter is able to sell about 15 ads per game and each total ad package being sold to advertise for the entire season costs $1-$8 million (Wall Street Journal). This means revenue for the NFL streaming deal could be worth up to $120 million. This does not include revenue from other live streaming deals including with the MLB, NBA, NHL and Bloomberg.
Many analysts think that Twitter's greatest value is in their data and that is why companies such as Google and Salesforce are interested in Twitter. It is true that Twitter's data about users is very useful for companies and monetization of that data would add tremendous value. But Twitter does not need to be sold to a company that could use that data to tap into its value and Twitter is already monetizing and working on increasing monetization of that data through Gnip.
Gnip is a social media API that Twitter bought in 2014 to monetize their social data. Gnip currently works with 95% of the Fortune 500 and provides data to IBM, Salesforce and Bloomberg in providing real time data, historical data, and insights based on that data from Twitter (Gnip).
The use of big data is becoming increasingly important and growing dramatically. The big data market is expected to be worth $187 billion in 2019 (IDC) and 48% of big data use is customer analytics (Datameer). Twitter's data can be tremendously valuable in examining interactions between users and brands and using that information to better connect customers to brands and businesses. I believe as the big data market grows and companies begin to realize the value of big data, Twitter will be making substantial revenue through Gnip.
Twitter continues to grow revenue at a compound annual growth rate of 49% since 2013. This is a huge amount of revenue growth and they are losing money because of high spending on research and development and sales and marketing. If research and development and sales and marketing budgets were cut in half they would be posting a profit. I believe the investment in research and development and sales and marketing is necessary to improve the experience on Twitter and secure market share. As Twitter matures and gets to a point where less development is needed, revenue will be higher than it is today and research and development and sales and marketing budgets can be heavily reduced resulting in a profit. Two ways Twitter will generate new streams of revenue will be through live streaming and selling data information through Gnip. Twitter is a fast growing technology company exposed to the social media, broadcasting, and big data markets and thus losing money in the present is necessary to further develop and is common in technology companies. Yet Twitter is overly punished for not being profitable. I believe over the next few quarters Twitter will continue to grow revenues and eventually post profits with revenue totaling more than its research and development and sales and marketing budgets.
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.