After coming under extreme selling pressure this spring, Twitter (NYSE:) is gaining momentum again. Shares of this microblogging app have surged more than 25% in the past month, much faster than the gains of other social media rivals such as Facebook (NASDAQ:).
Twitter, which closed Thursday at $68.25, has more than doubled in the past 12 months. Over that period, Facebook shares are up 42%. So, what drives growth investors to choose Twitter over other social media giants?
The San Francisco-based company has recently unveiled many initiatives to drive growth, including a highly anticipated subscription service to diversify its revenues through advertising alone.
Dubbed to Twitter Blue, the product provides access to tools to 'undo' a message before making it public, organize bookmarked tweets into folders and make it easier to read long tweet threads.
The service is now available in Canada and Australia for $3.49 and $4.49 per month respectively. The company has not said when Twitter Blue will be available in the US.
In addition, Twitter's recently acquired newsletter platform Revue allows creators to publish newsletters and monetize them. Follows, which allows people to charge their followers for exclusive content, such as tweets, newsletters, or access to audio conversations. The company has not yet rolled out the feature, but plans to offer three pricing tiers: $2.99, $4.99, and $9.99 per month.
All of these steps are part of the company's goal to double its revenue by the end of 2023 and expand its user base to 315 million daily active users from its current 200 million users.
The subscription model could help Twitter diversify its activities, especially as pandemic-driven activity in user engagement declines. The company derives more than 85% of its revenue from advertising, with the rest coming from its data licensing business.
Some hedge funds with deep pockets are seeing value in Twitter stocks. Elliott Investment Management recently bought more than $200 million worth of Twitter stock after the company's disappointing first quarter caused a plunge in its shares. Cathie Wood's ARK investment funds also bought 1.3 million shares of Twitter to take advantage of the slump after the Q1 report.
Despite this backing from hedge funds, most analysts don't see much price increase for Twitter stocks from here on out. Based on 27 Wall Street analysts offering 12-month price targets for Twitter, the average target price is $68.04, according to TipRanks.com.
The main reason behind this cautious approach is the possible slowdown in user growth after the pandemic-induced wave. Twitter expects second-quarter revenue between $980 million and $1.08 billion. The $1.03 billion mid-market is below analyst estimates of $1.06 billion.
Bottom Line
Some investors rely on the company's recent growth plan and buy its shares. Analysts, on the other hand, don't see much profit from this point in the near term as the company enters a slow growth phase after the pandemic-driven surge in user engagement.
