Twitter's (NYSE:TWTR) stock fell significantly after a particularly bad earnings call, but there are still a few bright spots for the company. In this segment from Industry Focus: Tech, analyst Dylan Lewis is joined by senior tech specialist Evan Niu to discuss Twitter's data licensing business, which is growing at a 20% pace year over year and could be a big part of the company's strategy going forward.
A full transcript follows the video.
This video was recorded on Aug. 4, 2017.
Dylan Lewis: Speaking of user data, if you're looking for bright spots in this report, the data licensing business for Twitter is doing well. It's up over 20% year over year. Right now, it only makes up about 15% of revenue, but it is higher-margin revenue. Management said that $1 in data revenue is worth $3-$4 in ad revenue due to the difference in profitability there. And you see that a little bit bear out in the financials where the company hit a 31% EBITDA margin, earnings before interest, depreciation, taxes and amortization. That's the best they've done as a public company. So, as that business grows, that's something to be interested in. The problem is, it's such a small portion of Twitter's top line right now, and a lot of the user issues that we're talking about ultimately feed into that business, as well. It's not something that's siloed, that's apart. The relevancy and value of their data licensing business hinges on how many times people come back to the platform, how many times people use the platform, and how important it is to people's lives.
Evan Niu: And it's kind of an interesting reversal from the mentality they took a few years back. When they first went public, this data licensing revenue was, again, pretty profitable. But in all the other filings, they kept predicting, saying, "Data licensing is going to continue to be a smaller and smaller part of the business as the ad business grows." But now, of course, fast forward a couple years, they're having so much trouble growing the ad business that now they're trying to turn that story around, like, "Hey, look at this data licensing business! We're going to try to grow that again!" Whereas a couple years ago, they weren't really concerned about it, because they were focusing on the ad business. So, I think it's an interesting reversal if you look at management's mentality of how they approach these two parts of the overall business.
Lewis: Yeah, and they said they're going to explore new ways to expand that. In the coming quarters, I would not be surprised to see that make up a larger portion of revenue overall, particularly as they figure out what's going on the ad side.