Twitter Inc (NYSE:TWTR) shares surged 5.02% to $41.44 on Thursday after Barclays analysts Paul Vogel and Michael Urciuoli initiated coverage of the stock with an Overweight rating and $46 price target. Shares of the microblogging company have tanked about 32% this year so far amid concerns of slowing user growth. Vogel and Urciuoli said that Twitter has fundamentally changed the way people consume real-time news and information.
Twitter has found ad formats that work well for marketers
Twitter’s total revenues soared 110% in 2013, with 120% growth in advertising revenues. In the first quarter of this year, revenues jumped 120%. The company even showed sequential growth of 3% from Q4, 2013 to Q1, 2014. That’s impressive given the seasonally strong Q4 advertising. It’s evidence that the company has found advertising formats that work well for advertisers.
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Barclays says that advertising revenue is likely to remain strong. Marketers are increasingly shifting ad dollars to the Internet and mobile. Twitter stands to benefit as it’s a mobile first company. The microblogging company’ 80% users access the platform through mobile. Twitter’s average revenue per user (ARPU) of $2.79 in the U.S. and $0.35 in the international markets has plenty of room to grow.
Barclays expects Twitter to further simplify its platform
Of course, the user growth concerns persist. There are a large number of people who find it difficult to understand the Twitterland. They frequently see “@” and “#” but they don’t know what these signs mean and how to use them. Compared to other social networking platforms such as Facebook Inc (NASDAQ:FB) and YouTube, Twitter is more challenging to understand and use for new users.
However, the San Francisco-based company has been improving its platform and making significant changes to address these issues and increase engagement. Twitter has shortened the sign-up process from about a dozen to just a couple of steps. The company has added a new functionality to allow users to easily upload photos within a tweet. Barclays says these are good steps. But Twitter needs to do a lot more to simply its platform in order to reach the masses.