Why Twitter Inc (TWTR) Makes Senses From An Investor Standpoint

Anthony DiClemente, analyst at Nomura Securities, was on CNBC to share his thoughts about Twitter Inc (NYSE:TWTR), a social media company whose second-quarter results took many on Wall Street by surprise. Nomura Securities rates Twitter Inc (NYSE:TWTR) a “Buy” and they have a price target of $43 on the stock.

Twitter

Discussing Twitter’s earnings beating the estimates, DiClemente started by pointing out that the company is still much smaller compared with Facebook Inc (NASDAQ:FB) in terms of users and other measures. As a matter of fact, he said Twitter is currently less than one-fifth of Facebook in terms of user numbers.

However, DiClemente said Twitter Inc (NYSE:TWTR) is an interesting company from the fact that it is sees real pricing power in terms of monetization growth.

“I think when you look at the rate of monetization growth that they put up in the quarter, the fastest rate of growth in the last six quarters. They talked about pricing being up quarter over quarter 18%,” said DiClemente.

That means that Twitter Inc (NYSE:TWTR) is generating increasingly more revenue per users. DiClemente went on to discuss that the main concern for Twitter is about how big it can monetize its resources and grow its users.

“[...] The real question is how big can users be? How big can monetization per user be? Right now on a per user basis Twitter is monetizing by half of what Facebook Inc (NASDAQ:FB) is. I think they can catch up,” observed DiClemente.

As to whether Twitter Inc (NYSE:TWTR) will continue to spend more on Facebook Inc (NASDAQ:FB) ads, about $600 million annually, DiClemente said he believes Twitter spends that much because of the huge audience on Facebook. While Twitter spends $600 million on Facebook ads, Facebook Inc (NASDAQ:FB) on its part spends about $100 million on Twitter.

Twitter Inc (NYSE:TWTR) posted a 124% increase in revenue in the second quarter to $312 million against the estimated $283 million for the quarter.

Disclosure: none

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