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It Might Feel Impossible, But Here Comes the Bullish News for Twitter


Our purpose is to provide institutional research to all investors and break the information monopoly held by the top .1%. That means wading through misinformation. You're now a part of that change.

In the latest earnings call Twitter saw its user base, measured as monthly average users (MAUs), rise to 310 million -- an all-time high. But, in the same breath the company had disappointing revenue and even more disappointing revenue guidance.

But, there is now not only a light at the end of the tunnel -- but an end to the tunnel in and of itself.

The most successful form of advertising has shifted abruptly and rapidly to video. While forecasts were for the medium to grow 106% from 2014 through the end of this year to $9.14 billion, those numbers are going to be way (way) too low.

We just learned that juggernaut advertisement buying firm Magna Global, responsible for around $37 billion in marketing investments on behalf of clients like Johnson & Johnson and Coca-Cola, has moved $200 million in ad spends away from TV ads and to Alphabet Google's (NASDAQ: GOOGL) YouTube for online video ads.

But this isn't about a $200 million deal, this is about a $200 billion transformation. First, a step back to look at the segment, then we dive into Twitter.

Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL) and Twitter (NASDAQ:TWTR) all noted that online video was becoming the preferred outlet for advertisers across their various properties.

While Facebook (NASDAQ:FB) claims it receives 10 billion video views a day, Google announced this on its latest earnings call:

YouTube on mobile alone now reaches more 18 to 34 and 18 to 49 year olds in the U.S. than any TV network, broadcast or cable.

Though much smaller, Twitter reported that 82 percent of its users watch video content on the platform and 90 percent of those came from mobile. Further, since August 12th, 2015, Twitter's live online video app Periscope has nearly tripled.

But that's not the news, yet.

First, here are the most visited online video sites from our friends at Statista:

Google sits at the top, with Facebook right behind it. But this is just one piece of the puzzle.

There are 133 million households in the United States alone with a cable TV subscription and 75% of those people watch TV everyday (Source: AYTM). Check out how much is spent on standard Television advertisements:

In stark contrast to online video advertising, which is pegged at market size of less than $10 billion, TV advertising is pegged at around $200 billion -- or 20-fold larger.

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As we stated earlier, we can throw that 106% growth and $9.14 billion estimate for online video advertising in 2016 out the window. Given the circumstantial evidence we received from each of the company's individual earnings reports and then the empirical evidence we just got from Magna Global's shift from TV ads to online video ads, it's now plainly clear:

Online video advertising is going to be one of the largest advertising media in the world and there are just a few tech companies that will take all of it.

If Twitter has an advantage, it's in real-time communiques.

Twitter revealed that the number of direct messages grew over 60% in 2015 and yet more, the number of Tweets shared privately has grown by 200% in just the second half of last year.

We also know that since Periscope's launch last March, more than 110 years of live video has been watched via Twitter's live streaming video app every day. But, on August 12th, 2015 that number was just 40 years. So, we have seen nearly a triple.

Further we know online video advertising is about to see a huge spike. In fact, Twitter's revenue shortfall was due to large advertisers seeing such good results with video on Twitter that they pulled some of their standard ads to see if the video results could really hold up. If they do, the money will flow right back in, but in bigger numbers and focused on video.

Finally, we just learned this:

Periscope videos used to only live for 24 hours, then they automatically got deleted. That was a major problem with the monetization strategy since everything had to be in real-time. But, we just learned that Live streaming app Periscope is following their rival Facebook, testing a feature to allow users to permanently save their broadcasts in a bid to attract more brands and advertisers.

All a user needs to do is put "#Save" anywhere in their broadcast title.
Source: CNBC

Here's why this matters: Jack Kent, senior mobile analyst at IHS, told CNBC:

It's important to Periscope's own strategy in terms of working with brands and advertisers for monetization. Some might have been put off by the limited time that Periscopes were available.

The (previous) challenge (for Periscope was) getting viewers within that 24 hour time frame. This new feature will make it a better position to make it a big brand attention Periscope and Twitter need.
Source: CNBC

Twitter was selected by the NFL to carry the live national broadcasts and submitted lower bids than the other large firms in the fray.

Further, CNBC reported last month that Twitter beat Facebook over the acquisition of these rights because NFL felt that Facebook undervalued content rights and has a poor monetization model, according to sources close to the situation.

There's no easy way to say this -- Twitter's stock has been crushed and is now right on all-time lows. It's been a hideous investment and while a longer-term view shows promise, Facebook also has a longer-term view but that stock is doing just fine in the short-term as well.

The truth is, just the fact that it took Periscope this long to allow its videos to be saved is embarrassing. But, as only Twitter can, it has moved progress forward at a painstakingly slow pace -- yet somehow, you get the feeling that it matters.

Remember, Twitter disclosed that it has seen across-the-board increases in likes per-user favorites, retweets, replies, tweets and daily usage following the new timeline's debut.

Simply by virtue of being a real-time engine with a real-time video component, Twitter does stand to see outsized revenue growth. Look for revenue guidance to come up in the back half of the year as the NFL deal starts, video advertising in general outperforms and Twitter, ever so ploddingly, shows user growth and a competitive advantage to Facebook in one sliver of a segment that just happens to be exploding.

This is the beginning of analysis, not the end. To really understand why Twitter will finally be a winner, and then to go further, to find yet again the 'next Apple' or the 'next Facebook,' we have to get ahead of the curve -- with facts. This is what CML Pro does. Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals, but we are the anti-institution and break the information advantage the top .1% have.

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Thanks for reading, friends.

The author and the author’s household hold shares in Twitter as of this writing.

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