Twitter Inc (NYSE:TWTR) management is on their initial public offering roadshow this week, and analysts are taking turns handing out their recommendations on the company. Hillside Partners analyst Rory Maher says he’s concerned about potential growth in the company’s ability to add U.S. users. He also notes that average revenue per user is low right now, although he sees potential upside next year thanks to Amplify and MoPub.
Opportunities for Twitter in Amplify, MoPub
According to Twitter’s recent S-1 filing, its current average revenue per user (ARPU) is just $2.64. That’s compared to Facebook Inc (NASDAQ:FB)’s average revenue per user of $6.30. Maher suggests that if Amplify ads were added to just 3% of timeline views, Twitter Inc (NYSE:TWTR) would see an increase of $60 million in estimated revenue for 2013. That’s about a 5% increase.
The analyst said by adding MoPub, the micro-blogging site could see “exponentially higher” revenue for the second half when compared to the first half of this year. He estimates that MoPub could generate between $60 million and $100 million in revenue for Twitter in 2014.
By utilizing both Amplify and MoPub, he suggests Twitter could increase its overall ARPU by 40 cents.
Twitter’s international versus U.S. ARPU
Maher believes that average revenue per user rose 94% internationally and 24% in the U.S. during the first nine months of this year compared to all of last year, Twitter must be successfully increasing the number of advertisers using its platform. He thinks the site must also be increasing the size of its average ad buys. However, he said since overall ARPU fell 4% during the period, it’s looks like Twitter Inc (NYSE:TWTR) faces a challenge growing into a larger company because its international user base is growing more quickly than its U.S. user base and has just a fraction of the ARPU.
In the U.S., Twitter’s ARPU is $8.41, which the analyst says is impressive. It’s a 24% increase from the 2012 full year. However, international ARPU was only 85 cents—a 95% discount to U.S. ARPU. Since international users as a percentage of monthly active users on Twitter rose to 77% during the third quarter, this massive difference in ARPU is a problem.
Twitter’s mobile numbers encouraging
The analyst notes that Twitter’s mobile ARPU is almost on par with its PC APUR, which he says is encouraging because of the company’s large mobile audience. During the third quarter, mobile ARPU was $2.47, just a 24% discount from PC ARPU. He suggests that mobile’s discount to PC is less for Twitter than it is for the majority of online publishers because of the types of ads it posts and also better mobile targeting. He notes that this is a positive for the micro-blogging site’s overall revenue growth in comparison to competing publishers with bigger discounted mobile rates since 76% of its users are mobile and that percentage continues to rise.
