Where Will Twitter’s Stock Go From Here?

Twitter Stock Review(TWTR):

For years, Twitter has failed quarter after quarter to deliver profitability.  Recently, Twitter had its best quarter ever with a net income of 91 million dollars. Shocking the market, Twitter’s stock price has gone straight up since its successful earnings.  Additionally,  although Twitter’s revenue rose, its monthly active user base showed no growth. Twitter has shown great promise with its successful last quarter, however, there are still many issues surrounding the company. Let’s take a closer look at Twitter and what the future could hold.

Their Challenges:

At the moment, one of Twitter’s Problem is the number of fake or inactive accounts on its platform.  Many analysts downgrade the stock believing that many fake and or inactive users make up a large part of their user base. Also, many analysts believe Twitter is too similar to its behemoth competitor, Facebook. They believe that Twitter doesn’t have enough key differentiating factors and will eventually be crushed by Facebook.

The President’s Affect on Twitter:

If you follow politics, you know that The President Trump’s favorite way to reach the general public is through Twitter. He attracts many to the platform who otherwise would not of been on it. As a result, the President has brought publicity and new users to the platform.

Our View:

Although many see Twitter’s Short-term success as no indication of the future, we disagree.  

Twitter is already working on eliminating the inactive accounts that scared away many investors. Once these accounts have been eliminated, we don’t believe that this problem will have a significant or lasting effect on the platform. Additionally, we don’t believe the justification of this downgrade is fair because most other major social media platforms deal with or have dealt with similar issues.

From our recent experiences on Twitter, we have noticed an increase in ads throughout the platform. The company is clearly working to increase its ad revenue by finding new ways to increase the number of ads on the platform. This is great news as it shows advertisers are finding their advertisement campaigns on Twitter successful. However, if Twitter were to make ads even more frequent, the platform would begin to look spammy and tacky. Therefore, for Twitter to start making even more money(which it needs to – currently valued at 101 p/e) it will need to increase its daily and monthly active user base.

We see Twitter as an essential platform that will be here for the long run. Its platform separates it from other social media platforms such as Facebook and Instagram because it is THE PLACE for live news regarding any subject. If we want to see live updates of a sports game – we go to Twitter; If we want live news about a political topic – we go to Twitter; If we want weather updates – we go to our local weather man’s Twitter. The list goes on and on. We would never go to Facebook or Instagram to find these results, because people posting on Facebook and Instagram are mostly sharing special moments in their life, and not their opinion on a public news matter. That being said, some Facebook users do post about these topics, but generally speaking, Twitter has locked up that category. Therefore, because Twitter has a niche that is essential to social media and a strong demand for ads on their platform, we believe they have the potential to continue their success far into the future. 

Disclaimer: Do not invest your own money without doing your own research, our content is not meant to convince you to buy or sell a stock, but simply to share ideas and unique viewpoints.

 

Spotify in the Spotlight – Company Gets Ready to go Public

Spotify, founded in 2006, has just filed for their company to go public. Different from most initial public offerings, the Spotify stock will go straight to the NYSE with no team researching what the initial price offering should be. The risk associated with the stock could be very high since it could take wallstreet time to understand what the company should be trading at. As quoted from the filing, “prior to the opening trade, there will not be a price at which underwriters initially sold ordinary shares to the public as there would be in an underwritten initial public offering. This lack of an initial public offering price could impact the range of buy and sell orders collected by the NYSE from various broker-dealers. Consequently, the public price of our ordinary shares may be more volatile than in an underwritten initial public offering and could, upon listing on the NYSE, decline significantly and rapidly.”

How does Spotify stack up against Competition?

Spotify is up against tough competitors offering similar music services: Pandora, Rhapsody,Soundcloud, and not to mention the new and emerging Apple Music. Impressively, Spotify leads the industry in monthly subscribers with 71 million, the next closest is Apple Music with 36 million.  Although Spotify is much farther ahead, it is important to mention that Spotify was founded in 2006, while Apple Music was founded in mid 2015. Spotify has had a 9 year head start and Apple already has half the amount of subscribers they do.not only does Apple offer a quality service, but they also have the branding and marketing to heavily promote there service At this point in time, Apple’s success and growing popularity is one of the companies biggest threats.

How much money does Spotify make?

According to their F1 they have recorded increasing revenues for the past three years. In 2015 revenue was 2.37 billion, in 2016 3.6 billion, and in 2017 4.99 billion. However, the company has lost money the past three years as well. In 2015 the company recorded a operating loss of 290 million, in 2016 a operating loss of 431 million, and in 2017 a operating loss of 465 million.(All numbers recorded are in USD)

Our View: While Spotify is one of the leaders in the industry, we dont believe that there is anything separating them from the competition. From what we can see, the service that they provide doesn’t blow away the competitors. This is a problem for Spotify because it leaves little room to raise prices because there are endless alternatives for the consumer to go to for a cheaper price. This would opens the door for other music streaming services such as Pandora and Apple music to take some of their market share.

Additionally, with the large user base that Spotify currently has, they are still losing large amounts of money. Although Spotify is the most popular streaming service, in order for them to become profitable they will need to decrease expenses by renegotiating the amount of money they pay to creators or increase the cost of their premium membership. However, Increasing the cost of the membership is a slippery slope as it could turn customers away. Additionally, Spotify has very little leverage negotiating with music creators as they rely on their new content- if the company doesn’t have the latest popular song, the consumer will not hesitate to take themselves to a different platform.

Will Spotify be able to cut down their expenses while maintaining their market share to turn a profit?

Let us know your thoughts in the comments below!