Twitter – Shopaholic

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E-commerce is not the answer to Twitter’s woes.

• Twitter has expanded its presence in the fast growing e-commerce segment by announcing new partnerships for its “buy now” buttons.
• These are software buttons that make it easier for users to discover and buy products directly from tweets with a few simple clicks.
• This builds on the functionality that was launched a year ago which enabled users to begin making transactions over its network using services like Shopify.
• Twitter is building on this by announcing partnerships with Bigcommerce and Demandware as well with as some retail brands headlined by Best Buy.
• This adds a lot of weight to Twitter’s move into this space that has not seen much traction since its launch.
• I think that the timing is right as shopping is currently the fastest growing activity on mobile devices, but it will not resolve Twitter’s current predicament.
• Twitter is well placed to enhance shopping as it is able to place relevant products in front if users but shopping is still only a tiny part of the Digital Life pie.
• RFM’s most recent research has found that shopping is growing fast but off a very low base, making up just 3% of all the time spent on a mobile device.
• Adding this to microblogging and instant messaging gives Twitter just 16% coverage of the RFM Digital Life pie.
• For any ecosystem, and especially those that rely on advertising, it is essential to have good coverage and I have long been of the opinion that this is the source of most of Twitter’s woes.
• If I take Google’s revenues, users and coverage and benchmark Twitter against them, I conclude that Twitter will have maximised its revenue opportunity at around $2.5bn per year.
• This number is up from the $2bn estimate I made in May 2014 (see here) but it still sees Twitter’s growth grinding to a halt even including a contribution from the shopping segment.
• Twitter currently expects $545m-$560m in revenues this quarter giving an annualised run rate of just over $2.2bn and no real growth.
• This is the strategic bind that Twitter finds itself in as it must expand to the other segments if it wants to be relevant in this space and encourage users to spend more time within its services.
• Furthermore, I think that if it has wider appeal, it would probably also be able to attract a wider audience as its 500m visitors represent only a small proportion of all of the internet users.
• This requires a big strategic move to be made by Twitter necessitating the presence of a focused, motivated and high quality CEO.
• I think that a part time CEO will be a disaster for Twitter which why if Jack Dorsey is to return, he must completely give up his role at Square.
• Either way, a turnaround is going to take time and I think that the market is still over optimistic as to when this can be achieved.
• Consequently, I think that the rest of this year and 2016 are going to be very tough for the company.
• Twitter still sports a fairly racy valuation for a company that has gone ex-growth at 7.1x 2015E EV / sales and 76.5x 2015E PER.
• I think that this could come under further pressure as the reality of a longer recovery period becomes more widely known.
• I see further downside.