Twitter continues to earn mixed reviews from analysts, with at least one firm downgrading it this week and another issuing a more positive report on Periscope. Interestingly, both firms focused on opportunities in video advertising for Facebook and Twitter.
In a rare move, analysts at Evercore ISI blame Facebook’s momentum for their downgrade of Twitter. Meanwhile Nomura analysts think Periscope may already be worth $1 billion.
Twitter downgraded to Hold
In a report dated June 4, Evercore ISI analysts Ken Sena, Andrew McNellis and Conor McDade said their conviction on Twitter has been reduced because management’s efforts to grow the platform’s user base are still in their early stages. As a result, they downgraded Twitter from Buy to Hold and slashed their price target from $49 to $39 per share.
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Management has emphasized that improvements are needed in targeting, measurement and creative. Recently they announced changes to their Direct Response products, and their comments on those three areas were mainly focused on those products, as they are only about a year old. However, the Evercore ISI team thinks improvements in these three areas are needed across Twitter’s platform rather than just in Direct Response.
Further, they think visibility on user growth has declined, which has reduced their conviction that Twitter is under-monetizing its reach and frequency.
All Facebook’s fault
When looking at Facebook, the analysts see “perhaps the richest mobile news reading experience today.” The social network unveiled Instant Articles last month, which keeps users on Facebook rather than transfers them to third-party platforms. The result is faster loading times and extended content capabilities for Facebook, plus better measurement features and opportunities for publishers to share in Facebook’s ad revenue. Twitter’s Amplify attempts to do these things, but it has yet to catch on.
Under Instant Articles, publishers keep 100% of ad revenue when they deliver an ad or 70% when Facebook delivers it. The Evercore ISI team sees the major breakthrough as being the experience rather than improved measurements because Facebook has eliminated the load time of articles while also improving its offerings to publishers.
As a result, they think Instant Articles will enhance Facebook’s ad revenue just as video ads have. Further, they think Facebook’s advantages are both scale and design, suggesting that the two are “becoming increasingly hard to distinguish.”
When looking at Facebook and Twitter side by side, the analysts state that Facebook’s referral traffic has now reached the same level as that of search giant Google. Over the same time frame, Twitter’s referral traffic has remained about the same. (Graphs are courtesy Evercore ISI / Nomura as indicated.)
When comparing Facebook and Twitter to other major social networks, the analysts also discovered that Facebook was the only one showing growth in sharing engagement in the U.S.
The Evercore ISI team has a Buy rating on Facebook and has increased its price target on the stock from $95 to $105 per share. As of this writing, shares of Facebook were up 0.13% to $82.16 per share.
Periscope worth $1 billion?
Nomura analysts Anthony DiClemente and Kevin Rippey are much more positive on Twitter, although they have a Neutral rating and $39 per share price target on the micro-blogging platform. In particular, they like the potential of Periscope, the company’s new live video streaming offering.
They believe Periscope alone could be worth $1 billion already, even though Twitter only bought it recently. It’s believed that the company paid $86 million to acquire the startup. If Periscope really is nearing $1 billion, that would mean that it makes up “half the value per user of Twitter’s current $80/user valuation,” according to the firm.
The Nomura team thinks Periscope offers a “unique potential to compete for branded ad dollars.” They are encouraged by early data on user growth and engagement on the platform. Since launching on March 26, the live video platform has collected over 2 million users and hosted over 3 million hours of live-streamed content.
Engagement metrics surrounding big live events also indicate that Periscope will be extremely valuable to Twitter.
Three areas of importance for Periscope
The analysts say Periscope will be important to Twitter because of its addressable user base, the dynamics of engagement on the platform and possible opportunities for monetization.
For example, early adoption metrics suggest Periscope’s user base could hit 50 million within the next three ears. They’re assuming a growth trajectory that’s similar to that of Twitter’s Vine app, which has hit 40 million users since it was launched in early 2013. iOS rankings suggest that Periscope may already have more than 2 million users. The app should grow even more, as it recently launched on Android.
While the Evercore ISI team focused on Facebook’s current domination in news, the Nomura team suggested that Periscope might be the next go-to source for news coverage in real time. They expect usage of Periscope to be closely correlated with major events like the FIFA World Cup or breaking news. They noted that downloads of the app peaked during the Mayweather-Pacquiao fight.
In terms of monetization, Nomura analysts see multiple possibilities through video ads, sponsored native content and eventually a subscription offering.
As of this writing, shares of Twitter were up 0.27% at $36.81 per share.