Twitter Inc Is Finally Taking Advantage of This $1.3 Billion Opportunity

By Markets Fool.com

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Twitter announced a deal to syndicate promoted tweets with Flipboard. Source: Flipboard.

Last summer, Twitter CEO Dick Costolo made investors curious when he said the audience for his social network was two to three times the size of its monthly active user base. He believes the people exposed to tweets through third-party apps and websites, as well as those unique visitors who do not log into the service, are a valuable asset for the company.

At the analyst day last November, CFO Anthony Noto made the case that non-logged-in visitors and those who view tweets on other websites could be worth as much as $1.3 billion annuallyfor the company. That is about equal to total revenue for 2014.

Now, Twitter has announced its first partnerships to take advantage of third-party apps and websites that embed tweets. Most notable is Flipboard, which has 100 million active users, many of whom integrate Twitter accounts with the newsreading app.

Billions of opportunities
Twitter says there were approximately 185 billion tweet impressions outside of Twitter in the third quarter of last year. Those impressions came from news aggregators such as Flipboard, websites with embedded tweets, and apps including ESPN SportsCenter that integrate select Twitter content. Until now, Twitter has been unable to take advantage of that content.

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With Flipboard, Twitter agreed to split revenue from promoted tweets, but the details were undisclosed. At CES last month, the company also mentioned an opportunity with ESPN but is reportedly still working out details for an agreement.

The next step
The move to syndicate promoted tweets is a great first step. The next step is to make it easy for anyone to monetize Twitter content on their website or app.

Last fall, Twitter unveiled a new suite of tools, called Fabric, for developers. Fabric includes tools to embed tweets and monetize apps using MoPub, but it does not blend the two the way users will soon see on Flipboard. Providing multiple ways to monetize an app -- MoPub display ads and promoted tweets -- could boost adoption of the tools.

That could give Twitter a leg up on Facebook , which offers the Parse developer kit, providing similar functionality except it uses Facebook analytics tools and log-in processes. The company opened its ad network to developers last year and is able to provide some of the best user and targeting data.

Twitter needs to prove it can offer more functionality and potential profits for developers than Facebook -- adding the ability to syndicate promoted tweets and share revenue with Twitter is certainly a part of those efforts. Plenty of app developers already integrate tweets but do not see a dime from those impressions.

Attracting more developers to Fabric will open the door for Twitter to sell more ads through MoPub and offer app promotion through its app-install ads. In that way, the opportunity could turn out to be even bigger than Noto's $1.3 billion estimate.

Starting to win over Wall Street
Wall Street has been disappointed with Twitter for some time now. Its active user growth has not lived up to expectations, which makes investors concerned as to whether the company can sustain its huge revenue growth. However, the announcement that Twitter would start monetizing users through syndicated tweets certainly got some attention -- the share price climbed more than 6% on the news.

Investors should look for more color on the company's fourth-quarter earnings call and listen for similar deals like that with Flipboard or integration with Fabric. Those could be real catalysts for Twitter to drive not only ad revenue growth but user growth as well.

The article Twitter Inc Is Finally Taking Advantage of This $1.3 Billion Opportunity originally appeared on Fool.com.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.