Image Source: Entrepreneur Magazine
Hit me on twitter n Ima get witchya
You man steady hatin but he don't get the
Dawg only mad kuz he got 5 followers
It ain't my fault that u don't wanna
Sean Kingston featuring Sean Paul - Follow Me (Twitter Song)
It looks like Jack Dorsey is doubling down in his ownership stake in Twitter. The CEO in a recent Form 4 filing purchased over 574,000 shares bringing his total stake in Twitter to over 16 million shares.
CEO's buy shares of their stock usually for just one reason. CEO Jack Dorsey probably believes his company, Twitter, is being undervalued by the stock market and is doubling down to show the shorts of Twitter he's looking to improve Twitter for the long haul.
Twitter like its peers Facebook and Google make money from ads. Companies will buy ads from Twitter who promote the ads to Twitter users. As more people use the Twitter platform, the more lucrative the platform becomes for advertisers as they can reach a potentially larger audience.
The weird thing about Twitter, however, is while the number of users has grown by 7% in the U.S., the total revenues Twitter makes from advertising declined by 11% year over year according to its latest shareholder letter.
The decrease in revenues from the U.S. has been in part due to fears of Twitter not being a safe platform for its users. This fear is not unfounded and has prevented U.S. advertisers from engaging more meaningfully with Twitter.
I don't think this revenue decline is going to last much longer, though. That's because Dorsey is placing bets on live video streaming in three categories: sports, news, and entertainment.
Audiences should continue to engage with various content providers like Bloomberg for business news, Major League Baseball for sporting events and Conde Nast for both news and entertainment. Video content allows advertisers to roll out video ads within Periscope, Twitter's video platform, as well as Amplify which gives publishers real-time in-tweet video clips that are accompanied by pre-roll or post-roll advertisements to reach their target audiences.
Look for an increase in revenues domestically over the next three-quarters when compared to last year's quarterly results if Twitter can make headway in this area.
Another source of revenue generation is licensing data to businesses looking to scale brand awareness across the Twitter platform. Twitter made $74 million from data licensing last quarter and hoped to improve its fortunes in this area of the business as a future driver of revenue.
The other area where Twitter seems to be improving is in cost reduction. Costs are an important factor for Twitter developing meaningful user engagement with advertisers. Twitter's cost per engagement (CPE) managed to decline by 63% year over year. The reduction in costs is a sign of management getting their expenses in line with declines in revenues.
Look for a significant increase in Twitter's operating profit if Twitter's revenue can improve while slowing the rise in their advertising expenses.
One risk, however, would be a decline in user engagement if seasonal trends have any impact on social media user engagement. Another risk is if the expected revenues from data licensing are not as large as executives plan for. A third risk would be a decline in ad revenues would also force the company to ramp up its operating expenses to drive revenue growth in ads.
The bottom line here is that often, a CEO buying shares in the company they run is a positive signal to the market. Look further at the company SEC filings like their 10-Q to determine whether the risks in a stock like Twitter are worth the potential reward after their CEO expresses confidence in the business by buying shares.
Thanks for reading @ellofinance today. Have a great week ahead.