July is turning out to be a good month for investors of social media platform Twitter (TWTR), with shares rising nearly 19%.
The latest uptick came on the back of speculation Twitter is about to launch a new subscription-based service. In a jobs listing, Twitter said it was looking to hire a full-stack engineer to build “a subscription management platform” called Gryphon. It appears investors liked the idea of an additional source of revenue for the ad reliant platform.
Like other social media players, most of Twitter’s revenue is derived from advertising. With the possibility the current ad boycott on Facebook might extend to other platforms, along with the coronavirus’ impact on ad budgets, diversification of Twitter’s business model has fueled investors’ imagination.
That said, Rosenblatt analyst Mark Zgutowicz doesn't believe the new venture will be used to change Twitter’s current model.
“We would caution it is highly unlikely the company would be considering paid subscription tiers for Twitter usage, but rather for data and analytics that its power users may consider, or a TweetDeck on steroids, per se,” the 5-star analyst said.
An extension to TweetDeck – Twitter’s service to helps users manage multiple accounts and to better parse data – appears to have been in the cards for a while now. User surveys from 2017 suggested it was considering a service with deeper data and analysis tools for power users to better gauge followers’ engagement and actions.
Zgutowick believes such an offering might have commercial potential.
“We suspect there is a paid market for this service for a select number of Twitter’s power users. If we assume 5% of its 1Q20 reported 166M mDAUs, one could assume perhaps a sub 10M initial user TAM. Of course, this remains purely in speculation mode at the moment, and we await any clarification from the company,” he said.
All in all, there’s no change to Zgutowicz’ rating, which remains a Hold. The analyst’s $27 price target suggests shares will decline by 24% in the months ahead. (To watch Zgutowicz’s track record, click here)
A similar sentiment is expressed across the Street. Based on 5 Buys, 19 Holds and 3 Sells, the analyst consensus rates Twitter a Hold. At $31.36, the average price target is more upbeat than Zgutowicz’, yet still suggests the next 12 months will see shares drop by 11%. (See Twitter price targets and analyst ratings on TipRanks)
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