Twitter: The King Of Tweets Tailwind

| About: Twitter, Inc. (TWTR)

Summary

After January 20th, Donald J. Trump's tweets will greatly affect financial markets, international trade, currency exchange, corporate strategies and drive headlines.

His usage of Twitter as a platform of choice to reach out to the American people, means that everyone will be glued to Twitter to stay current.

Twitter's lack of participation in the current bull run suggests that the market is overlooking a Trump tailwind in the stock.

The tailwind has potential to accelerate DAUs and MAUs, ability to grow impressions and increase the time users spend on Twitter. Thus, drive advertising revenues higher.

Introduction

With more than 18 million followers, more than 34,000 tweets, Donald Trump's Twitter (NYSE:TWTR) account is a force to be reckoned with. He has the potential to instantly reach millions of people worldwide: influence public opinion, affect the direction of the dollar, cause volatility in the stock market and create a picture of U.S. policy for the future.

But this is not just another famous person with a huge Twitter following, this is the soon-to-be president of the free world. The most powerful nation in the world. Although the United States accounts for only ~5% of the world's population, the United States accounts for nearly 20% of the world's GDP, at $18 trillion per year.

The United States has the most powerful military in the world, spending ($596 billion) more money on defense than the next seven countries combined ($567 billion from China, Saudi Arabia, Russia, United Kingdom, India, France and Japan).

So when the President of the free world speaks, the world listens. It does not matter whether you love him, hate him or are indifferent, his words cause ripple effects that can shake countries.

Thesis

This is why it is very important to pay special attention to Trump's new Twitter trend. It is more than just a habit for Trump, it is his preferred means of communication. But because it has no notice (like a press conference or a newspaper headline that give room for people to speculate), many more people will be glued to Twitter to keep-up with the trends.

But the market has Twitter wrong. A huge catalyst is right in front of us and yet Twitter's stock price is being punished. It's down ~6% since November 8th. The market optimism shown in the performance of the Dow Jones Industrial Average (DJI) is not reflected in Twitter's stock.

The Trump effect will be a great catalyst for the stock because it will cause an acceleration in:

  1. Daily Active Users ("DAUs") and Monthly Active Users ("MAUs")
  2. Impressions growth and time spent on the platform.

Factors (1) and (2) should translate to revenue growth in the long term.

Both catalysts have tremendous potential to increase Twitter's advertisement revenue and brand recognition, and even stock price appreciation.

Diplomacy in 140 characters

The death of press conferences and the rise of Twitter.

People's reading habits will change in the next 4 or 8 years. Normally, presidents arrange for a press conference whenever they have something important to tell the nation but it is different with Trump.

Trump tweets.

This means that instead of searching for breaking news on TV, you search for Twitter feeds to catch-up on any overnight news. Trump's decision to use Twitter will reshape the way we consume media. Redefine the relationship between the media and the government. Because the media is no longer the middleman that narrates from the president to the general public, Twitter has taken-up that role.

Implying that instead of waking up and checking the newspaper homepage, people are more likely to pick-up their smartphones and check Twitter. In an era where smartphone usage is rampantly increasing, Twitter looks like the obvious winner over TV or newspaper. This is going to attract new advertisers to the platform.

Engagement - The Twitter trend

Public companies cannot stay quiet when attacked because shareholders would become worried, create panic selling and unnecessary attention. They will need to respond, mainly through Twitter.

But this is not only about Trump and corporations. It is also about Trump and any other person he targets, about any other person who targets Trump, about any politician who wants to reach the masses quickly in 140 characters.

Twitter will see a lot of engagement as Trump's team repeals the Affordable Care Act and weaken post-crisis financial restrictions.

The political environment is putting Twitter on the map in a way we could never have envisioned. As Twitter becomes a credible news source, more engaging and globally recognized, more and more people will want to keep up with its trends. Thus, driving the number of Monthly Active Users ("MAUs") for Twitter higher.

Thesis risks

Technological companies that offer products need to create a platform that is easy to share ideas and other information. The success of the platform determines how many advertising dollars the company can make. Twitter has competitors such as Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL). Trying so hard to compete for the same advertising revenues and making it harder for Twitter to succeed.

More so, there is the risk that Trump will reduce his usage once he becomes a seasoned politician. Besides, even if Twitter manages to increase user engagement, time spent on the platform and total MAUs, there is always the risk that the company will not be able to successfully monetize the new clientele base.

Since IPO, Twitter has not managed to live up to its hyped expectations. Meaning that there is no guarantee things will be radically different. And, in the case that Twitter fails to grow its user base, or fails to increase user engagement or grow its advertisement revenue, both its top line and bottom line will be adversely affected and its stock price will fall.

Conclusion

The political revolution against the normal channels of political communication will help raise Twitter's profile moving forward. It aligns well with Twitter's strategy to enhance its live conversations, live connections and live commentary because Trump is not the only popular political figure who has opted to use Twitter to communicate with his supporters. Bernie Sanders has also used Twitter to express his ideas and criticisms.

But Twitter's catalysts moving forward transcend the political revolution. The executive exodus creates the possibility that Jack Dorsey might also resign. A new CEO would be a huge catalyst to Twitter's stock price appreciation. Plus, in its Most Recent Quarter ("MRQ"), Twitter announced a plan to streamline its human capital by ~9%. Twitter is taking necessary steps for long-term growth as it plans to achieve GAAP profitability this year (2017).

Furthermore, Twitter is also going to benefit from a corporate tax cut even if it has not participated in the Trump rally. The tax cut would instantly improve its bottom line, giving it more room to experiment with new ideas.

Also, a margin expansion resulting from a lower corporate tax makes Twitter more attractive for M&A activities. Plus, the Trump era might enhance Twitter's brand and make it successful in other countries. Once the company figures a way to monetize its current international base and potential new comers, margin expansions will be possible.

Besides, Twitter's new launches such as the Bloomberg market shows, politics and tech, the college conferences and its daily show The Rally, coupled with its newfound usage as a platform of choice for politics will drive user engagement, accelerate its DAUs and MAUs and consequently expand Twitter's margins. Hence, the reason why Twitter is an attractive buy for 2017.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TWTR over 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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