17 November 2019
Twitter appears to be regaining the confidence of investors as its financial performance improves. Photo: Bloomberg
Twitter appears to be regaining the confidence of investors as its financial performance improves. Photo: Bloomberg

Is Twitter a better investment option than Facebook?

While Facebook, the world’s largest social network, is facing tremendous pressure from lawmakers and regulators over its handling of users’ personal data, Twitter has seen its shares recovering from earlier losses.

Twitter on Wednesday said it is preparing to raise US$1 billion through the sale of bonds that could later be converted into stock or cash. 

It said the money will be used to restructure some of its finances and also for “general corporate purposes”, which could mean anything from investing in new products to acquiring companies.

The news came after index manager S&P Dow Jones Indices announced that the social media giant would be included in the S&P 500 index. Twitter is replacing Monsanto, which will be acquired by Germany’s Bayer.

Shares of Twitter have risen more than 63 percent this year, outperforming peers in the social media sector like Facebook, which has managed to increase by only 4 percent. Apple, the world’s most expensive stock, has jumped 11 percent year-to-date.

Indeed, Twitter is fast regaining the confidence of investors, thanks in part of US President Donald Trump who has opted to use the social media platform to deliver his semi-official policy statements. 

While many political observers disapprove of the president using an unsecure communications medium to make important policy pronouncements, that has proven a huge boost to Twitter’s reputation, prompting more people to sign up for the service and spend more time on the platform while enhancing its financial performance.

In the first quarter this year, Twitter’s year-on-year revenue increase accelerated to 21 percent, with better-than-expected growth across all major products and geographies.

Its strong revenue performance also drove profitability, with GAAP net income at US$61 million and GAAP net margin at 9 percent.

On the operating side, daily active users grew 10 percent from a year ago to 336 million, marking another quarter of double-digit growth.

The company also pressed on with efforts to make Twitter easier to use with the launch of Bookmarks and video timestamps. It is now easier for users to follow topics, interests, and events with new, curated timelines of tweets around breaking news events.

Like Facebook, Twitter is also focusing on video content. Its video views nearly doubled in the last year, with the format making up more than half of the ad revenue for the past two quarters. In April, Twitter widened its video partnerships with media companies like ESPN, NBC and Viacom, while increasing the number of shows it broadcasts from 16 to 30.

However, Twitter recently has dissolved its live video team and merged it with the content partnerships division. The move indicates that the company will focus less on live streaming.

While live streaming may provide a near-term boost to user growth, its long-term prospects may not be so rosy, considering that all major players are getting into the sector. In fact, it has become a competition among those with deep pockets as they have to outbid each other for content and live-streaming rights.

Video now accounts for more than half of Twitter’s advertising revenue, and was its fastest-growing advertising format in the first quarter.

The company is pushing live-streaming and video content to increase the platform’s relevance in the crowded social media space. But Twitter’s monthly active user base is growing at just 2 to 3 percent year on year. That may be the reason why Twitter is not investing in producing its own live content.

Beyond live-streaming concerns, Twitter is also losing its appeal among young users, according to separate Piper Jaffray and Pew surveys.

This is a cause for worry because young users represent the core of the digital advertising economy. If they are no longer spending much time on Twitter, the social media hub’s prospects may not be as bright as it would like us to believe.

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EJ Insight writer