Since pricing its IPO at $26, Twitter’s stock has been meteoric, reaching a high of $74.73 on December 26, 2013. However, the stock recently took a dive, raising some questions about Twitter’s viability as a public company. There is some punditry around Wall Street and Main Street that Twitter—a company that is not profitable and won’t be for at least until 2015—is overvalued and emblematic of another tech bubble. Instead, I’m going to argue that Twitter is under-valued.

1. ShareBloc
presents
Why Twitter is Still Under-Valued
Why Twitter is Still Under-Valued
Why Twitter is Still Under-Valued

2. Twitter is Under-Valued
Over two months from the Twitter IPO on November 6, 2013, I blogged in three separate
posts on why Twitter is under-valued. This is the slideshare of my findings from these blog
posts.
You can find the whole anthology here: http://blog.sharebloc.com/post/73005008356/
despite-rumors-to-the-contrary-twitter-is-still.
Why Twitter is Still Under-Valued
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3. Why Twitter is Under-Valued Part 1
An “effective” Twitter user is under-valued in the market
because we don’t count offline views.
Why Twitter is Still Under-Valued
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4. Comparable Social Network Valuations
At the end of the first day of trading, Twitter closed at $44.90, a 73% one-day increase,
leading to a market cap of $24.5 billion. In context, here are the valuations of some other
leading Internet social networks and content distribution platforms.
Why Twitter is Still Under-Valued
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5. Value Per User for Social Networks
Compared to some other comps, Twitter’s value per user is valued materially higher
above its closest public comps, LinkedIn and Facebook.
Why Twitter is Still Under-Valued
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6. User / Valuation Best Fit Chart
If you plot its valuation and its users, an interesting trend line emerges.
Why Twitter is Still Under-Valued
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7. User / Valuation Best Fit Chart
Removing Facebook, the r-squared shows Twitter and Snapchat outperforming the other
comps with Pinterest and Yelp underperforming.
Why Twitter is Still Under-Valued
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8. Users are the Wrong KPIs
Each company uses a set of key performance indicators (KPIs) to measure performance.
Twitter uses Monthly Active Users (MAU) but it may be a misleading KPI. This is because,
unlike LinkedIn, Facebook or any other social network, Twitter also has offline impressions
enabled by the sharing of tweets outside the platform.
In the video, Dick Costolo talks about President
Obama’s Twitter reach. President Obama already
has a massive reach with its 37 million followers
and the 800,000 subsequent retweets, reaching
an additional 25 million people.
This is augmented by impressions offline. The
Today Show has approximately 4.7 million
viewers and a popular German periodical has a
circulation of 1 million readers. This means the
value of Twitter goes beyond Internet properties.
Why Twitter is Still Under-Valued
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9. Twitter’s Value Per User is Misleading
Advertisements like the Oreo Ad reach
beyond @Oreo’s twitter followers, which
means Twitter’s effective user count is much
larger.
By leveraging its brand in a real-time
distributed manner, Oreo reached a far larger
audience than its Twitter followers by being
broadcasted across local news stations and
other press. I rarely see a Facebook or a
LinkedIn profile being broadcasted in this
manner, do you?
If you consider the number of Twitter users to
include the millions of non-Twitter users who
are exposed to tweets, Twitter’s “user count”
is significantly higher and its valuation per
user now looks incredibly cheap.
Why Twitter is Still Under-Valued
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10. Why Twitter is Under-Valued Part 2
Twitter Mobile Revenue Has Higher Upside Than Any Other
Social Network.
Why Twitter is Still Under-Valued
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11. Mobile is Tweeting the World
Unlike Facebook or LinkedIn, which adopted
a mobile strategy long after inception, Twitter
was born in it. Although, technically, Twitter
emerged as a web app first, its early origins in
alpha and beta had mobility in its DNA.
Much of its product decisions in Twitter’s
nascent days were influenced by the
limitations of SMS and mobile. Everything
from the original name (“twttr”) and the 140character limit dealt with the limitations of
SMS in a pre-iPhone mobile world. Mobile
phone users who were accustomed to typing
SMS without a QWERTY keyboard could
tweet more conveniently than email.
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12. Facebook and LinkedIn HTML5 Mistakes
“Our biggest mistake was betting too much on HTML5.”
– Mark Zuckerberg, September 2011.
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13. Twitter Leads in Mobile
As a percentage of users and revenue, Twitter exceeds both Facebook and LinkedIn with
76% of monthly active users and 70% of revenues coming from mobile in the third
quarter of this year.
Why Twitter is Still Under-Valued
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14. Facebook Mobile Growth
Facebook reports directly (or indirectly) three metrics (I’ll use my own terms to describe them):
•
•
•
Mobile-Only Users (A): These users only access Facebook through a mobile device.
Mobile+Desktop Users (B): These users access Facebook through both a mobile device or through
a desktop.
All Mobile Users (C = A+B): These users include all mobile users, some of whom access Facebook
also through a desktop.
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15. Facebook ARPU Increasing
Facebook ARPU has been steadily going up for the past five quarters. From this, we can imply that the
average mobile ad CPM will continue to increase to match its desktop web equivalent, which can
conservatively be calculated at 3-4x.
If Twitter mobile ARPU follows along Facebook’s mobile ARPU trajectory, Twitter should see
tremendous upside in their revenue growth.
Why Twitter is Still Under-Valued
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16. Twitter Mobile Monetization
Twitter will continue to increase ARPU
and monetization with additional
features and products including:
•
Twitter Cards for App Downloads
and Lead-Generation
•
Twitter In-Stream Videos
•
Twitter Image Previews
All this is In-Stream and optimized for
Mobile.
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17. Why Twitter is Under-Valued Part 3
Twitter International Revenue Has Higher Upside Than Any
Other Social Network.
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18. TGIF: Twitter Goes International First
An overwhelming 77% of Twitter users reside outside the United States, but account for
only 25% of revenue. This is a revenue opportunity.
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19. US Twitter Users More Monetizable
A Timeline view is how Twitter measures engagement and at the moment, the primary
mechanism for monetization. Twitter engagement lags International MAUs: 72.8%
engagement vs. 77.2% user base in Q3 2013. In other words, US Twitter users are more
engaged than their international counterparts, and thus, more monetizable.
Why Twitter is Still Under-Valued
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20. But International is Catching Up
The International ARPU is growing at a 22% quarterly growth rate, compared to the US at
7%. While it’s unlikely the International ARPU will close the sizable $2.22 ARPU gap
anytime soon, there is an opportunity for greater revenue expansion internationally.
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21. Facebook’s International Growth is Guide
Of Facebook’s 1.2 billion members, 83% reside outside the US & Canada. Compared to
Twitter’s 77%, you would think Facebook would have a similar monetization problem.
Why Twitter is Still Under-Valued
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22. Facebook Monetizes International
53% of Facebook’s revenue comes from their international user base, compared to
Twitter’s 25%.
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23. How Can Twitter Catch Up to Facebook?
Facebook has had more years to monetize their international users. To catch up, Twitter
has began a series of business development and product launches to capture more value
out of its international users:
•
Twitter Pictures in Direct Messages: Twitter’s move to allow photos in Direct Messages
is the first shot across the bow into messaging
•
MoPub Services Native Ads in Tango Messaging Platform: MoPub, a mobile ad
platform recently acquired by Twitter, is announcing a native ad product, which
conveniently looks like Twitter’s own native ads.
•
Twitter Retargeting: Twitter’s retargeting platform, Tailored Audiences, is another ad
product that can contribute to Twitter’s topline.
•
Twitter via USSD: By allowing access to tweets through USSD, Twitter opens up to a
large group of mobile-first users without smart phones or data plans.
•
Twitter’s International Partnerships: Twitter is working with international telecom
partners to make it easier to tweet.
Why Twitter is Still Under-Valued
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24. Conclusion
While Twitter stock has risen considerably since the original posts, I still think there is
tremendous upside for Twitter. Consider that Twitter only began generating minimal
revenue in 2009. Comparatively, Facebook was generating $777 million in revenue that
year.
In its IPO filing, Twitter says it plans to expand their self-service advertising platform to
countries outside the US. With opportunities offline, in mobile and internationally, Twitter
has plenty of upside.
Disclaimer: I don’t own any Twitter stock but I have friends who work there. If the stock
goes up because of this, I may get free drinks from them (maybe).
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26. Contact
David Cheng
david@sharebloc.com
CEO & co-founder
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