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.
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.
