MoPub, the mobile ad company that Twitter, Inc. (TWTR) bought for $350 million, only had $6.5 million in revenue in the first half of the year, following $2.7 million in net revenues for 2012. While most analysts have been shocked by how small the company turned out to be, Pivotal Research Group’s Brian Weiser thinks the investment is best understood as a strategic move that expands the types of ad products that Twitter can offer and hopefully give it a strong presence in a growing market instead of a straight value proposition.
Twitter’s strategic goals with Mopub
“Twitter’s choice to buy MoPub likely relates to broader strategic goals designed to help Twitter, Inc. (TWTR) extend the reach of its advertisers’ campaigns across the broader mobile web,” he writes. “As dollars allocated to in-app mobile environments remain small, the scale of these figures aren’t overly surprising, although we think some investors might have some sticker shock when reconciling these figures with the approximately $350m that Twitter agreed to pay for MoPub.”
In-app advertising and real-time bidded inventory (RTB) are small markets, but they are set to grow over the next few years. While there will be plenty of competition from Nexage, Smaato, Velti and others, MoPub gives Twitter, Inc. (TWTR) a basis to compete in this growing market. So even if net revenues don’t justify the investment right now, it makes more sense to judge the acquisition on whether Twitter is able to turn it into a strong position in the mobile ad market.
Twitter’s reason behind buying MoPub
Twitter, Inc. (TWTR) will have plenty of opportunities to explain its decision in the run up to its IPO, so if there are more reasons behind buying MoPub we’ll hear all about it. Weiser thinks that Twitter will need to keep making acquisitions to build its presence in the online and mobile marketing space, and that even if the IPO is a success the company might need to raise additional cash to keep on with its current business plan. He also warns anyone thinking about investing in the IPO that Twitter stocks are likely to be riskier than the company itself as sentiment moves rapidly in response to recent momentum, just as it does with Facebook Inc (NASDAQ:FB).