What makes Twitter Inc (NYSE:TWTR) unique from other companies offering online advertising? Not knowing the answer to this question is going to be the biggest barrier to the company expanding its revenues beyond $1 billion, according to analyst Brian Wieser of Pivotal Research Group.
Twitter downgraded to Sell
Shares of Twitter Inc (NYSE:TWTR) have struggled since IPO day, falling 7% on Friday and another 1% in premarket trading this morning. Analysts (including Wieser) at several firms downgraded the company’s stock after share prices soared well above the IPO price of $26 per share. Even now, they remain at more than $40 a share, so many analysts continue to rate them as a sell despite being positive on the company.
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Wieser still expects the micro-blogging site to deliver $4 billion in revenue by 2018. Currently he believes that the company will be able to make $1 billion in revenue from its current level through “sheer brute force of sales effort,” noting that demand among big advertisers still remains hidden during these early stages of growth. Nonetheless, he says it’s the second billion in revenue that will be the hardest.
What Twitter is right now
According to Wieser, one of the biggest problems with determining what kind of market size Twitter Inc (NYSE:TWTR) will ultimately grow into is just how global marketers use it. He also wants to know how well it can establish itself as “uniquely good for certain sets of media goals for certain sets of advertisers.”
He notes that currently Twitter is a medium for PR as well as a support for ecommerce. The result is advertisers spending money on performance-based advertising. He says Twitter also has “social characteristics,” which work well to large brands’ mass marketing goals, and notes that this is where Twitter makes most of its money.
Twitter needs to figure out next steps
However, he says it isn’t clear where Twitter Inc (NYSE:TWTR) will go next to find continued growth. He believes that the company will only be able to grow into a $2 billion in revenue company after it discovers what it is “uniquely good at.” In other words, what does Twitter off that other types of media offer? When this question is answered, he believes we will get a better idea of just how large the market potential for Twitter really is.
Differentiating Twitter’s offerings
The analyst uses the comparison of television and radio advertising to compare Twitter with Facebook Inc (NASDAQ:FB). Both of them offer their own dimension of advertising, and marketers use each in a different way to achieve a different goal, even though they are rather similar. In the same way, Twitter offer different but similar opportunities for advertisers. He notes that currently both of them take a chunk from companies’ social media advertising budgets even though Twitter is different than Facebook.
Twitter and television: a match made in heaven?
One thing he doesn’t mention is an interesting suggestion we heard recently. Twitter Inc (NYSE:TWTR) tends to be the place where people talk about things in real time. For example, they make comments about a show they are watching live on television. Facebook Inc (NASDAQ:FB), on the other hand, tends to be where people post comments after they have finished watching television.
It is this position of being a sort of second screen for television that provides one area of differentiation. Twitter could be considered more like the television of social media, in a way. Of course the company is going to have to find ways to adapt beyond this early trend as television won’t always be the same. The practice of cord cutting could eventually take a bigger chunk out of television, so Twitter Inc (NYSE:TWTR) is going to need more than just a reliance on live television. It may only be a question of when it will need this, so it would do well to start asking this question early rather than later.
Twitter becoming an integral news tool
Another area where Twitter does better than Facebook, in my opinion, is in the news industry. We have come to rely heavily from Twitter reports from people on the scene of major events, and we’re not the only ones according to a recent survey. Everyone is a reporter these days, and news flies around the globe faster than ever before—largely thanks to Twitter.
The company has taken steps in this area of differentiating itself recently by hiring NBC News’ Vivian Schiller to head its new News division. The key is going to be leveraging this differentiation successfully.