Twitter Inc’s Future Hangs On Monetizing Logged-Out Users

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Twitter is expected to release its next earnings report on or around Feb. 5, and let’s face it. The micro-blogging company has gotten hammered after pretty much all of its earnings reports as a public company. The issue has been continued disappointments in monthly active user growth, although analysts from multiple firms have attempted to reassure investors, saying that this metric doesn’t really matter.

Twitter sets monetization goals

So what could Twitter do to combat disappointment about its user growth numbers? The key is monetization and whether management can execute on their plan of pulling revenue from logged-out users. Unfortunately there are some big question marks in this plan, like how much these users are really worth.

In a report dated Jan. 12, 2015, Canaccord Genuity analysts Michael Graham and Austin Moldow said they actually think Twitter’s business model may offer the sector’s “best potential” for growth in earnings per share and upside.

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What will Twitter’s next earnings report look like?

The analysts think current estimates for Twitter’s fourth quarter appear to be “reasonable.” They’re looking for about 11 million new monthly active users in the quarter, compared to 13 million new users in the previous quarter. They’re projecting an 85% growth rate in revenue, which is a decline from the previous quarter’s growth rate of 114%.

One area in which they’re expecting expansion is in EBITDA margin, which they expect to grow from 19% in the previous quarter to 23% in the fourth quarter. The Canaccord Genuity team points out that Twitter’s EBITDA margin is about half of Google’s and less than a third of Facebook’s. They think in the long term, Twitter’s margin will be somewhere between them (38% to 65%).

Slowing user growth still a problem for Twitter

The analysts say they’re not very confident in their forecasts for Twitter’s overall monthly active users. For this year, they’re expecting to see 48 million, which represents a 16% growth rate. That’s a decline from the growth rate of 22% in last year’s second quarter.

Of course slowing growth in monthly active users continues to be a concern for Twitter, but they say it’s important that the company is able to demonstrate that it can monetize logged-out users. Management presented this initiative at the micro-blogging company’s last analyst day. The Canaccord Genuity team thinks Twitter will indeed be successful in monetizing these users in the long term, thus gaining back Wall Street’s confidence.

Twitter’s first step

This week it was revealed that Twitter may be planning on selling ads within the tweets third-party publishers use on their apps and websites. If the company is successful in doing this, it would be a good step toward its goal of monetizing logged-out users. The logistics of this plan could be a bit tricky at first, but with Twitter’s recent string of innovations on its own offerings, it seems likely the company can pull it off, if Monday’s report is true.

They remain Buy-rated with a $56 per share price target on Twitter. The company’s shares edged upward by less than 1% in premarket trading this morning.