Twitter (TWTR) may still be undervalued, even after Elon Musk's controversial $44 billion acquisition bid that values the company at $54.20 per share. The current Twitter valuation debate is centered around free speech and Elon Musk's ability to unlock additional value by making the social media platform more inclusive.
But this might be just a fraction of the value that Elon Musk could eventually unlock at Twitter, and that is what makes the long-term outlook for Twitter so enticing.
Unlock value by reinventing Twitter
Analysts may be overlooking one key factor: the company's ongoing attempt to become a more decentralized internet platform. For nearly three years, Twitter has been looking to become more open to developers, more transparent with users, and more interoperable with other social media platforms. And this ethos is something that Elon Musk seems to embrace. He wants to open up the Twitter algorithm so that everyone can see how and why items appear in your social media feed. He has suggested that big, impactful decisions should not be entirely made by a small group of insiders at Twitter HQ. In a decentralized Twitter, more power would flow to every Twitter user and less power would reside with Twitter senior management.
By giving more power back to users and developers, the thinking goes, Twitter might actually be able to unlock new value. And, little by little, we have seen evidence that this approach might actually work. In 2021, Twitter even launched a new business unit called Twitter Crypto that would explore various ways that the company could create new revenue streams using crypto and blockchain. One example is the new ability to tip Twitter users that you like using Bitcoin. If a user has turned on Tips within their Twitter profile, then you can send Bitcoin to their specified Bitcoin wallet address in much the same way that you would send money to someone via their PayPal account. Another example is the ability to add crypto wallet addresses to your Twitter profile page. This is what enabled the government of Ukraine to accept crypto donations from Twitter users after the Russian invasion of the country. For now, however, Twitter has no plans to introduce a new cryptocurrency of its own.
Transforming Twitter might be harder than it sounds
So is it really possible for Twitter to become a decentralized internet platform? We all know that Elon Musk is a crypto enthusiast, and he has already suggested making changes to the company's overall business model to unlock new revenue opportunities. Imagine, for example, being able to move your Twitter digital identity seamlessly across other social media platforms or being able to filter your Twitter feed as you see fit, simply by paying Twitter a small fee. After all, users are already paying Twitter a small monthly fee to be able to use NFTs as their official profile picture.
The problem, quite simply, is that Twitter is so heavily dependent on advertising revenue right now that any of these changes, however innovative, only represent a drop in the bucket. It might be a case of too little, too late. Advertising revenue accounts for $1.11 billion of the $1.20 billion in overall revenue (92.5%) for the quarter ended March 31. Even recent innovations, such as the Twitter Blue paid subscription service, have barely made a dent in the company's overall revenue model. If diversification is the key to long-term success, then Twitter is facing a perilous future if it fails to find new revenue opportunities.
So is Twitter a good long-term buy?
The case for investing money in Twitter basically comes down to a single question: Is Twitter better off as an advertising-dependent media company, or as a decentralized internet platform? The good news is that the answer to this question might be coming much faster than anyone expected. If Elon Musk – the same person who says he will be taking us to Mars by 2030 – can't make this work, then perhaps nobody can. We're not asking Elon Musk to take Twitter to Mars, only to the moon.