TWTR: The Crossroads (User Survey: n=7,500)

Takeaway: TWTR is risking long-term damage to its business model by trying to appease the street. Mgmt needs to shift gears before it’s too late.


  1. THE PROBLEM: Monetization is coming at the expense of user growth and retention.  TWTR runs a CPC ad model, meaning the user must engage with TWTR’s ads in order to generate revenue.  In order for TWTR to drive the level of revenue growth the street is expecting, it must continually introduce more and more ad load, which has historically pushed its more casual users away.  In short, TWTR has been chasing good prints at the cost of potential life-time users.  Longer-term, TWTR’s business model will be hampered by its cumulative churn, leading to a smaller user base to distribute ad load on to, hence lower potential revenues down the road.
  2. THE DATA: We have seen this dynamic playing out throughout TWTR’s reported history, with US MAUs and Ad Engagements (proxy for ad load) moving in opposite directions (see note below).  We also ran a survey attempting to segment TWTR’s users by engagement levels (n=7,500).  What we’ve found is almost 40% of respondents with a twitter account are no longer using the platform.  Of those that do remain, roughly half do not use the platform daily, suggesting they are more casual users, hence more likely to churn off.  The good news is that there is still room for user growth (estimated 38% US penetration), but not enough to support a model with elevated churn.
  3. THE CROSSROADS: TWTR needs to decide what matters more: appeasing near-term street expectations, or building a sustainable business model.  The latter means that TWTR needs to prioritize the user; both attracting new users and reclaiming the ones that it has lost.  We’re not sure exactly the best way go about doing that, but what we can say is TWTR can’t win the user while simultaneously chasing lofty consensus revenue expectations with rampant increases in ad load.  Mgmt's approach to 2016 guidance will essentially tell us where its priorities lie; i.e. whether TWTR is a secular short or something we can potentially get behind.  For now, we remain short.  


TWTR: Are Acquisitions Enough?
03/17/15 08:50 AM EDT
[click here]


TWTR: The Crossroads  (User Survey: n=7,500) - TWTR   Ad eng vs. MAU 2Q15

TWTR: The Crossroads  (User Survey: n=7,500) - TWTR   User Survey Churn 3Q15



Let us know If you have any questions or would like to discuss in more detail.


Hesham Shaaban, CFA



Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more