Twitter has a reason to be happy as its user base is stabilizing, but the sad news is that the revenue it is generating from new ad products is coming at the expense of its legacy advertising business, said Monness, Crespi, Hardt & Co. analyst James Cakmak on Wednesday.
The good news
Last year with growing concerns about stagnating user growth, Twitter shares lost more than 62% of their value. The number of monthly active users went up to 310 million in the first quarter of 2016, compared to 305 million in the fourth quarter of 2015 after falling by 2 million. For the first quarter, the micro-blogging company generated $531 million in ad revenue, higher from the prior-year period by 37%.
Investors should rejoice because of this development and also because of the partnership with Google to display real-time tweets in search results, which have opened revenue generation opportunities for the micro-blogging giant. And last but not least, Twitter also entered into a deal with the NFL to stream Thursday night football games.
However, according to Cakmak, there is bad news as well that offsets the good news.
The bad news
Speaking to CNBC’s Squawk Box, Cakmak said, “All the new dollars that they are getting are completely cannibalizing revenues from their old products, and the fact that even though impressions — the number of times you view adds — is growing, pricing is falling off a cliff.”
Cakmak said this is happening because of Twitter’s shift in focus to video ads which automatically play when a user scrolls past them. In contrast, demand for Facebook’s auto-play ads is growing, and the social networking giant has managed to increase impressions as well as pricing.
Twitter a perfect fit for Google
Cakmak believes Twitter is doing the right thing though. A majority of 77% people are habitual in watching television while using their computer and mobile devices, the analyst noted. He says there definitely exists an opportunity for Twitter, and one of the things that is getting lost is the importance that Twitter holds for Google.
“….because with the Google search partnership they’re able to get the real-time search results,” he said. “Without that, [Google] will lose relevancy in real time, giving Facebook a window.”
Cakmak said for this particular reason, it makes perfect sense for Google to buy Twitter. Partnering with Twitter has given the search giant access to real-time results, but purchasing it would eliminate the risk of some other company purchasing it, the analyst said.
