Monday, October 12, 2015

TWTR Video Ads Won’t Save Twitter Stock

Twitter’s six-second pre-roll video ads won’t do much good

Earlier this week, Twitter (TWTR) announced a new feature to help marketers better monetize videos posted on the social media site: six-second pre-roll advertisements. This means that Twitter users will begin seeing brief marketing messages before chosen videos actually play, much the same as what’s seen on Google’s (GOOGL, GOOG) iconic video property, YouTube.

Considering that YouTube is the Internet’s most popular video-sharing website, and has been displaying pre-roll ads for years, Twitter’s implementation isn’t likely to shock or surprise the social media site’s members.

With video being the new golden goose of Internet marketing — until now — Twitter’s massive 300 million active subscriber base represents a treasure trove of marketing potential.

There’s no doubt that the company’s newly-expanded Amplify partnership program, which began in mid-2013, will attract more partners and advertisers, and generate significant revenue.

Twitter Stock Still Struggling

This question is relevant not only for potential Amplify partners and marketers, but for TWTR stockholders as well. Recent performance of Twitter stock has been abysmal, with shares down nearly 44% over the past six months, 42% over the past year and 30% since the company’s November 2013 IPO.

Needless to say, management has been scrambling to find a way to boost the Twitter stock price and bolster the company’s competitive position against industry behemoth Facebook (FB).

In July, TWTR reported a revenue increase of 61% year over year, but that was overshadowed by the fact that “the microblogging company said its number of monthly average users grew at the slowest pace since it went public in 2013.”

Twitter CEO Jack Dorsey explained that, at the time, Twitter’s biggest problem was consumers’ trouble understanding both the service and how to use it. On the TWTR earnings call, Dorsey stated, “You should expect Twitter to be as easy to use as looking out your window.” Clearly, however, it’s not.

For TWTR stock to benefit from the new Twitter video ad features, enough marketers must sign up for the program and continue participating (read: paying) before any positive results might trickle down to Twitter stock.

Unfortunately, with a shrinking user base and a seemingly confusing interface, not to mention questions regarding the service’s necessity, it’s unlikely that the addition of six-second pre-roll ads to Twitter videos will generate enough revenue to bring TWTR out of the muck.

But, some popular marketers have agreed to participate in beta testing, and it’s possible that if those publishers — which include the likes of BuzzFeed, MTV, Time, Mashable, and Funny Or Die — report impressive results, more advertisers will sign on.

One thing that TWTR has going for it is the revenue-sharing split, which has been rumored to be 70/30 in favor of marketers, as opposed to the current 55/45 split of revenue generated from pre-roll ads on YouTube videos.

Bottom Line on Twitter Video Ads

Twitter’s shrinking user base, confusing interface, and stock that has crashed faster than a steel balloon are only some of the reasons that TWTR’s new marketing feature might not be the white knight that management has been praying for.

In fact, the most impressive — and amusing — boost to Twitter stock in recent months was the intraday increase that followed a fake Bloomberg story claiming that TWTR had received a buyout offer of $31. Shares spiked 8% when the “news” broke, but just as quickly fell when Bloomberg revealed the story was a hoax and did not originate on its site.

So, it seems that the only thing even mildly exciting for Twitter stock has been the possibility that the company might get acquired. To that end, don’t expect much in terms of a boost for TWTR simply because management has developed a way to stick ads into Twitter video posts.

Maybe if a legitimate buyout offer was presented there would be reason to get excited. In the meantime, just get ready for even more commercials.

Article originally appeared on InvestorPlace (10/12/2015)

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