Sometimes, it is tough being the youngest. Everything you say and do is viewed in juxtaposition to what your older siblings have accomplished before you. Twitter likely knows what that feels like.
Continue Reading Below
Lumped in with Facebookand even LinkedInas a "social media stock," the company has had a tough time keeping up with its older peers when it comes to some key metrics. That is probably most true for monthly active users (MAUs) -- the gold-standard that everyone on Wall Street watches to see just how popular a social media site really is.
If we look at how these three companies grew their MAU bases in the first five quarters after going public, you can see what I mean:
The takeaway here is clear: LinkedIn grew the fastest, while Twitter and Facebook showed similar growth patterns in their first five quarters as public companies.
There is one huge problem with this comparison, though: when Facebook was sporting MAUs of 1.15 billion, Twitter had amassed a following of just 288 million. With a smaller base, many investors believe that Twitter should be putting up much more impressive growth.
Continue Reading Below
Some think that the 140 character service is just too difficult for mainstream Americans to "get" and that it has already peaked. While management is currently working on ways to change that perception -- and user experience -- I think investors might be missing the bigger picture.
How Twitter stock can surge without 1 billion MAUs
Two major trends are working in its favor that could render slow MAU growth meaningless.
The first is the migration of advertising dollars toward mobile devices. Of publicly traded social media companies, none has a more defined presence on mobile than Twitter. Last quarter, 88% of Twitter advertising revenue came from mobile displays.
This is important as over the coming years, advertisers will be shifting en masse toward mobile advertising. Here is a look at how mobile advertising budgets will be increasing between now and 2018 for the five largest economies in the world.
That is heady growth that helps explain how Twitter was able to double revenue last quarter, even though MAUs grew by just 20%.
A force for influence and tipping points
But this migration alone is only half of the story. The other half has to do with the people that douse the service -- frequent tweeters might be the most valuable users out there.
InThe Tipping Point, Malcolm Gladwell describes three factors that need to be present for a normal idea, movement, product, or service to become extraordinary, adopted by the masses. Obviously, for those spending advertising dollars, reaching a tipping point is the ultimate success.
I want to focus on the first of the three factors, what Gladwell calls "The Law of the Few." He believes there are three types of people that need to champion an idea before it can reach a tipping point.
- Connectors are people who have some expertise in many realms, therefore allowing ideas to migrate from one area to another.
- Mavens are concerned with helping others to make informed decisions.
- Salesmen have the type of charisma that eventually affects the behavior and decisions of others.
I would argue that Twitter is a gold mine for advertisers looking for Connectors, Mavens, and Salesmen.
While it is difficult to quantify who, exactly, is a connector, Twitter does have broad appeal. African-Americans and Hispanics are twice as likely to use the service as Caucasians. And though there is a slight trend toward the more affluent, those earning below $50,000 still use the service at comparable rates.
In terms of attracting mavens, Twitter is definitely fertile ground. A fascinating study by Pew Research discovered that there are six archetypal structures of Twitter conversations. You can click on the link to read more, but by my own estimation, three out of the six structures (Unified, Fragmented, and Out-Hub & Spoke) are primarily concerned with wanting to help others make informed decisions.
Finally, we have salesmen. When it comes to social media, no medium has a greater presence of brand awareness than Twitter. The same study by Pew Research specifically singled out the "Clustered" archetypal structure as key: "All globally recognized firms have a distinctive structure of connection and conversation among the people who mention them. [Their networks represent] large populations of people who have no ties at all to the others who are tweeting about the same subject."
What is interesting is that the salesmen are able to dominate in a type of conversation where they do the talking and others do the listening -- very much unlike the types of conversations where mavens thrive by helping one another.
Add all of this up and what you see is that the primary base of users consists of trend-setters -- people whose actions often dictate the behaviors of others. Clearly, these are the most valuable eyes for advertisers to target, and I believe that they will become increasingly aware that cash devoted to Twitter ads is money well-spent.
If you want to follow along to see if this theory proves out, check future quarterly statements and look for a continued upward trend in "advertising revenue per thousand timeline views."
The article Twitter Inc Stock: The Company May Never Reach a Billion Users And It Should Not Matter originally appeared on Fool.com.
Brian Stoffeluses Twitter but definitely does not see himself as a trendsetter. He owns shares of Facebook, LinkedIn, and Twitter. The Motley Fool recommends Facebook, LinkedIn, and Twitter. The Motley Fool owns shares of Facebook, LinkedIn, 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.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.