MKM Partners analysts Rob Sanderson and Wendy Farina take a close look at Twitter Inc (NYSE:TWTR) as they break down the results of a proprietary study that analyzes key factors in the microblogging company’s growth, user engagement, and potential to monetize its various features. The report on that study reads as follows:
Twitter Inc (NYSE:TWTR) remains a controversial stock. Twitter is the fastest growing large-cap in the Internet sector and carries the highest valuation. User growth slowed meaningfully to 30% in Q4, a cause of concern. Investor sentiment remains highly negative and 42mn shares are short, which is about half the float and over 5-days to cover.
In collaboration with Wendy Farina in the MKM Intelligence Community, we have conducted a proprietary study to better understand user engagement, growth potential and monetization opportunity for Twitter Inc (NYSE:TWTR) . The sample of 2,030 respondents includes 1,030 that have a Twitter account and 1,000 that do not.
Twitter survey results illustrate a few important points:
• User-engagement on Twitter Inc (NYSE:TWTR) appears to be high, as do stickiness metrics.
• User growth issues appear to be fixable. Many users that have stopped using Twitter Inc (NYSE:TWTR) highlight experience issues like not understanding the language and difficult account maintenance.
• User distribution suggests a mass-market use case. Interests are well distributed across a broad group of categories and users are well distributed across income and education levels. Users skew somewhat younger but 46% are over 35 and 12% over 55.
• Survey results suggest large advertising potential. More than 50% of respondents say they use Twitter Inc (NYSE:TWTR) to follow brands and 41% say that coupons and sweepstakes are an important reason to be on the service. Very few users are bothered by ads on the platform.
We are encouraged by results of this initial survey. Our intention is to run this as a time-series, which we think will provide more valuable insight on how the perceptions of Twitter Inc (NYSE:TWTR) users evolve.
We do not think Twitter Inc (NYSE:TWTR) can grow into its valuation without a meaningful expansion in its user base. This is the key issue for the stock, which we think will improve through the year. We expect the first hint of improvement on this key metric will be a significant upside catalyst for the stock. Timing is uncertain and many investors would rather wait for evidence and buy the stock at higher levels than risk further disappointment. We think expectations for a rebound are low in the near term, with MAU expectations in the 250-255mn range for Q1 (i.e. 23-35% growth from 30% last quarter).”