Jack on Track: Why this Time is Different for Twitter
Twitter is an enigma. A company with extreme power, but middling results. Led by a quirky moonlighting CEO. I believe Twitter is strategically placed for the future, but let’s start at the beginning.
History Repeats
Twitter wasn’t always the enigma that it is today. At a certain point Twitter was the hot start up, the hot IPO, but then things didn’t go quite as planned.
Below is a brief timeline of events:
- 2006 – Jack and Evan Williams started Twitter
- 2007 – Twitter starts to gain popularity driven by virality of SXSW (South by Southwest)
- 2008 – Jack steps down as Twitter CEO. During his time away from Twitter, Jack casually started Square which has gone on to become a $115B company.
- 2010 – Twitter usage is up to 65 million tweets per day
- 2015 – Jack returns to be the CEO of Twitter
- 2015 – Twitter acquires Periscope
- 2020 – High profile Twitter hack
- 2021 – Twitter bans President Trump
The timeline is probably overly brief, but honestly not a ton happened between 2010 and 2019. It’s amazing how resilient the service was given the lack of changes from 2010 to 2019.
Interests, Topics and Spaces
Twitter is swimming in content. They have years of amazing content. The problem is, they are drowning in content. It takes awhile to get “good” at Twitter. By that, I mean the onboarding experience is rough. Unless you ease your way into Twitter via connections you already have on the platform, it can be overwhelming. Millions of people, billions of tweets. Heck, I’ve probably tweeted over 5k times alone. You join Twitter and see an endless stream of text that you may or may not be interested in. Personally it took me a few hundred hours on FinTwit before I found some of my favorite accounts.
It doesn’t need to be this hard. Machine learning should be able to easily figure out the different spheres of Twitter (Money, FinTwit, NBA, political, etc…). When you join, you can just choose a few random interests that can be automatically looped into your feed.
Furthermore, lists can take Twitter to the next level. Over time you can curate an NBA Twitter list that you browse while watching the Bucks win a championship. You can create a DFS (daily fantasy sports) Twitter list to help build your DFS squads on DraftKings. Easy curation is the cure for what ails the new user onboarding process for Twitter. Interests and Topics solve that and leverage the natural flow of content.
Spaces are the Clubhouse clone. Is Twitter fast enough to stop Clubhouse’s growth? This is the first of many tests for Twitter. The feature is being slowly rolled out, but should be fully rolled out by April. Fleets have been rolled out as Twitter’s clone of Instagram Stories (which cloned Snapchat). I haven’t even talked about newsletters this entire time either.
Fleeting Experimentation
I can’t really explain why, but Twitter stopped innovating and experimenting at some point. The explanation from Jack during analyst day was that they needed to focus on fostering conversation. That doesn’t fully click for me. Why not do both? Maybe the technical end was a mess and it delayed experimentation. Who knows. My expectation is that the experimentation that Twitter has recently shown will continue.
Twitter still has tons of room for future experimentation. From decentralization to micro payments, Twitter has lots of low hanging fruit. And hopefully all of these experiments will lead into future experimentation. It’s a little weird to have interests, topics, spaces, newsletters, and fleets all rolling out around the same time. But, it does show that Twitter got its groove back.
Financials
Twitter has committed to sizable user growth from 192M dMAU (daily monetizable active users) to 325M (?) dMAU by 2023. Relatedly, they’ve targeted $7.5B in sales by 2023. Twitter doesn’t feel like a $60B company, yet is one of the most powerful companies in the world. They kicked the president of the United States off the platform in January and no one talks about it anymore. Seems like a powerful company.
Twitter’s financials are driven by ad revenue and some data licensing. Ads can swing the profits wildly, as you can see in Q2 vs Q3 below. Data licensing makes up the remaining revenue (13.7% of spend).
Twitter has always felt under and poorly monetized. Mistargeted ads somehow led Twitter to profitability. When you have the users/attention Twitter has, monetization should come naturally. Money will find you. But it just hasn’t worked that way for Twitter. They haven’t been burning cash, but they’ve only been semi-profitable. In addition to all the user improvements, they also have a lot in the works for improved monetization/branding. One example is branded likes. For instance, Disney will pay Twitter to make the normal like a special Baby Yoda like if a tweet has a certain hashtag. Easy money for Twitter, great exposure for Disney, and who doesn’t like seeing a little Baby Yoda? Like on the user end, Twitter is making more improvements and experiments than they had been previously.
I’d argue at one point Twitter was a value stock. They were consistently turning profits and trading at lowish multiples. Those days have passed as the stock price has 5x’d during the past few years. Currently Twitter is valued at $48B and a price to sales ratio of 12. Earnings valuations don’t make sense for Twitter now as they haven’t consistently turned a profit since COVID.
Influencer Influenza
All of Twitter’s movements are setting themselves up for the influencer economy. Brands are planning to spend up to $15B on influencer marketing. The problem for Twitter is that they don’t get a cut of that. They get a little ad revenue, while the brands and influencers make the big money. The new tools Twitter has been developing will give influencers a new, easier way to make money (and Twitter will take a healthy cut). It’s a win win. Between super follows, tip jars and newsletters, Twitter is well positioned to support the influencer economy.
Summary
Is Twitter worth a $48B valuation? I’d argue yes. Twitter has a trillion dollar impact, but has been terribly monetized. If the days of stagnation are in the past, I see huge growth opportunities. Twitter historically had a low valuation to compliment the low expectations. Trading at 15x sales and not turning profits requires significant growth. Personally I trust Jack to get this done, but I do have a shorter leash given the past 5 years of meh.
To me, Twitter is a monster that has been lying dormant. In many ways Twitter drives our world and the financials never represented its power. Twitter nails so many categories I look for in investments: optionality, dopamine, low marginal costs and founder-led. I absolutely understand why people will stay away from Twitter stock, but I see potential and trust Jack. Expectations have never been higher and it’s time for Twitter to fly high.
