Twitter rockets higher on development of subscription model
Shares jumped as much as 9.76%
Twitter shares spiked as much as 9.76 percent Wednesday morning after a new job posting revealed the company is building a subscription platform, but one Wall Street analyst believes investors may be too excited about it.
Twitter's new team, called Gryphon, is made up of a group of engineers that will work closely with the payments team to build the new product, according to the job posting. Twitter didn't immediately respond to FOX Business’ request for more details.
“Anybody who has an ad model should consider subscription, and anybody who has a subscription model should consider advertising,” Michael Pachter, a Los Angeles-based analyst at Wedbush Securities, told FOX Business, adding that a subscription product is more of a retention tool than anything else.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| twtr | NO DATA AVAILABLE | - | - | - |
Without knowing any details, Pachter speculated the product could look something like Hulu, which is “essentially free” if you watch ads and ad-free if you pay money.
While the product is in the early stages of development and the cost isn't yet known, Pachter said the companies that have both models typically make “marginally more” from the people who pay. He thinks that most people will “deal with the ads because they are not that intrusive.
“Twitter would be derelict in its duties if you didn't consider this,” Pachter said. “So hiring engineers to figure out if they can deliver it, who cares?”
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At the end of fiscal year 2019, Twitter had 152 million daily active users and full-year revenue of $3.46 billion. A back-of-the-envelope calculation shows the company makes about $22.75 per user a year.
That would suggest a fee of $2 per month would have a minimal impact on revenues while a monthly price of $20 would be adequate to move the needle. The way payments are collected also has to be considered, since allowing users to sign up through an iPhone, for instance, would mean Apple assessing a 15 percent fee.
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