Monetizing Mobile Users

08/04/2014 12:01 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Recent earnings and revenue from this social media giant is quite encouraging and MoneyShow's Jim Jubak explains what sets it apart from the other social media stocks.

After the market closed on July 29, Twitter (TWTR) announced its second quarter earnings. On those numbers, the stock soared 30% in the aftermarket session. When cooler heads prevailed the next day, it was up only 20%. What was driving it? What's really interesting is that a lot of the problems that Twitter had that pushed the stock down when it announced first quarter earnings back in April still exist. The number of monthly active users is still growing at a very, very slow pace, about 6%. The amount of time that people are spending on Twitter is still falling. In the United States at least, you're seeing a decline in that number so the people are spending less time there but what's interesting is that you saw a huge surge in global use, mostly because of the World Cup. Lots and lots of people, you're talking about $700 million tweets during the tournament.

The other thing that I think is impressive is that you saw a huge increase in revenue and I think that's really what drove the stock here. Remember that one of the real questions about Facebook (FB) and Twitter and Amazon (AMZN) and all of the sort of new online wave and social media in particular, which takes out Amazon, is whether they'll be able to actually monetize these users and what you got with Twitter where you saw revenue growth of about 125% year over year was a huge surge in that ability. That's especially important because Twitter has a whole lot of mobile users so what analysts were saying and investors were saying is this is evidence that Twitter can actually turn those mobile users into ad revenue and that's been a challenge for a lot of the online sites and for even a company like Google.

That was what's driving the stock here, the promise, the evidence, the possibility that Twitter has finally figured out a formula really that no one else has, a way to monetize mobile users. That's a hope going forward. I think it would be remiss of me not to mention the fact that Twitter trades at 652 times projected 2014 earnings so you're not talking about earnings. We're talking about revenue. The transition from revenue to earnings that's a problem at a company even like Amazon still lies ahead of Twitter but nonetheless what you're getting here is a sign that this company can actually turn users, especially mobile users who are really, really challenging, into ad dollars. That's what I think drove the stock higher on the 30.

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