Please ensure Javascript is enabled for purposes of website accessibility

Twitter Is Working on New Ways to Sell Its Data

By Adam Levy - Updated Nov 24, 2017 at 11:22AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With advertising revenue falling, Twitter is leaning on data licensing to pick up some slack.

Twitter (TWTR 2.25%) generates most of its revenue from advertising, but many investors see a lot of value in its data-licensing business. With a catalog spanning 11 years, including nitty-gritty data points like time of day and location, Twitter's database of tweets could hold a lot of value for developers. Indeed, Twitter generated $325 million from licensing its data to enterprises over the last four quarters, more than 13% of total revenue.

But with Twitter's ad business struggling, the company is looking to grow its data-licensing business. Its latest step is to offer a new set of APIs to offer limited access to its data for small developers. Instead of charging tens of thousands of dollars annually like its enterprise APIs, access to the new APIs will start at just $149 per month.

The first tool from the set, historical search, offers access to the last 30 days of tweets and eventually all tweets dating all the way back to 2006. It also allows developers to see more tweets per request, make requests more frequently, and make more complex requests, among other features.

A wood carving of Twitter's bird logo.

Image source: Twitter, Copyright Marisa Allegra Williams (@marisa) for Twitter, Inc.

Catering to small developers again

Twitter started making efforts to cut its costs last year. After a round of layoffs and shuttering 6-second video app Vine, Twitter was able to sell its developer platform, Fabric, to Google.

After shedding several non-core assets and cutting costs, Twitter is set to produce a GAAP profit in the fourth quarter. But in order for Twitter to grow its newfound profitability, it needs to find a way to increase revenue, something it's failed to do in each of the first three quarters of 2017. Management says it's out of ways to cut costs going forward.

Leaning on its lone bright spot in the business (data licensing) is a way for Twitter to return to revenue growth. Filling a need for small developers is a big opportunity. That said, it also comes with certain risks.

Twitter will have to build support teams for its new APIs, which will result in an increase in SG&A expenses. Ideally, the company can scale the business quickly to offset the costs and produce meaningful operating profit from the new products, but that's far from certain. Twitter's past relationship with small developers isn't the best, so some may be hesitant to work with Twitter again.

Data licensing has similar pitfalls as advertising

One of the biggest reasons Twitter has seen a pullback on advertising revenue is it's been unable to meaningfully grow its active user base. What's more, the users that it does have aren't particularly engaged. As a result, many advertisers are seeing a poor return on investment.

User growth and engagement can have a similar impact on Twitter's data licensing business (albeit a bit more subdued). All else being equal, developers would rather harvest data from a broad and engaged user base. On the other hand, the depth of some users' engagement on Twitter (i.e., power users) could be much more valuable from a data-licensing standpoint than an advertising standpoint.

Whether Twitter's appeal to smaller advertisers will result in meaningful revenue and profit growth will be something to keep an eye on in 2018 as the company aims to maintain profitability.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Twitter, Inc. Stock Quote
Twitter, Inc.
$38.23 (2.25%) $0.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.