What Twitter's Latest Multi-Million Dollar Deal Means for You

Twitter just closed a $230 million dollar deal with Omnicom, taking the social network further into the realm of mobile ads. Will this prove to be a positive move for investors?

May 31, 2014 at 9:00AM

Markets are up, with the S&P 500 reaching record highs over 1911 on Tuesday. While consumer and investor confidence is gradually on the rise, so, too, is the future of Twitter's (NYSE:TWTR) mobile ads platform. But, that does not promise that Twitter is still viable for the long term. 

Deal of the day
On Tuesday, the Wall Street Journal reported that Omnicom Media Group announced a mobile ad deal with Twitter worth $230 million over the next two years. Omnicom's ad-buying unit, Accuen, will be combined with Twitter's ad exchange, MoPub. The arrangement will include locking in ad rates and inventory access for Omnicom agencies, with the holding company receiving a "first look" at new at ad units, as well as opportunities developed by Twitter. 

Twitter's management is excited to have access to high-quality advertisers and feels that this deal is unique because it focuses on the tech aspect of advertisement delivery. Currently, ads that are programmatically purchased via Twitter only show up on third-party sites in the MoPub network. Although there hasn't been an official announcement that Twitter is open to programmatic buys, the company expects to move in that direction with the Omnicom deal.

Facing the mobile market
In April of last year, Twitter engaged in a similar partnership with Publicis-owned Starcom MediaVest Group in a deal worth $200 million. Last week, Facebook (NASDAQ:FB) struck a deal directly with Publicis Groupe worth "hundreds of millions of dollars." It was reported that the relationship between the two companies was designed to give Publicis more access to Facebook's ad inventory and data, while helping to leverage opportunities for video ads on Instagram.

Publicis emphasized that the Facebook deal began from the standpoint of three pillars important to clients, Publicis, and Facebook: data and targeting, visual storytelling, and video advertising. Facebook, agencies, and brands share a common goal of creating compelling ads and getting them in front of the right people. During the Q1 earnings call, Facebook emphasized that targeted ads were successful for both brands and small businesses. 

Data is surely going to be an integral part of the deal between Publicis and Facebook, as Facebook's information will be intimately integrated with Publicis' systems for ad targeting, optimization, and planning purposes. While Facebook and Publicis have set up a long-term deal to monitor growth and progress, Twitter and Omnicom have set up a short-term deal. Yet, both partnerships are striving to be the first of their kind, with Publicis being first to have a comprehensive amount of data for targeting, and Omnicom being able to deliver first-to-market benefits including content, placement, and measurement. 

Final analysis
As media platforms evolve and become more Internet-based, advertising agencies are faced with the challenge of reworking their advertising and marketing methods. Social media partnerships will prove profitable for Omnicom and Twitter, as well as Publicis and Facebook, but will Twitter really be able to compete? Twitter is trading at a P/E of N/A, with EPS at -$2.50, meaning that the company is losing money. However, average monthly active users for Q1 2014 was 225 million, up 25% year over year. Facebook is trading at P/E of 82.33, with EPS at $0.77 and monthly active users at 1.28 billion.  

Some reports are optimistic for Twitter due to expected growth in Asian markets, but Weibo, China's microblogging site, recorded 143.8 million monthly active users, up 34% year over year. With functionality advantages over Twitter and Facebook-like properties, the site continues to expand, and Twitter could face more growth challenges, despite optimism about Asia-Pacific markets. 

Twitter needs to maintain user numbers and growth to maintain increases in revenue and profit. If user numbers decline, revenue will likely decline as well, leaving little for advertisers and marketers to look forward to. So, while there is potential for Twitter to stay relevant, the social media site isn't showing much promise for increasing its user base -- at least in the short term.

If you have shares of Twitter, hold on to them. If not, don't be in a rush to buy.

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