The business model of Twitter is to give everyone the power to create and share ideas and information instantly without barriers. The company offers products and services for users, advertisers, developers and platform and data partners. The company’s goal is to reach the largest daily audience in the world through information sharing and distribution platform products.
Products and Services for Users
Twitter Inc. is a global platform for public self-expression and conversation in real time. The company has developed a new way for people to create, distribute and discover content on the internet. Any user on Twitter can create a Tweet and any user can follow other users. The company does not impose restrictions on whom a user can follow, which greatly enhances the breadth and depth of available content and allows users to discover the content they care about most. Additionally, users can be followed by thousands or millions of other users without requiring a reciprocal relationship, which the company refers to an asymmetric follow model. This asymmetric follow model significantly enhances the ability of the users to reach a broad audience.
Advertisers use Twitter to promote their brands, products and services, amplify their visibility and reach, and complement and extend the conversation around their advertising campaigns.
Many of the world’s most trusted media outlets, including the BBC, CNN and Times of India, regularly use Twitter as a platform for content distribution. In 2015 Twitter Inc. began to generate revenue directly from a few platform partners, and also benefit from network effects where more activity on Twitter results in the creation and distribution of more content, which attracts more users, platform partners and advertisers.
The substantial majority of revenues is currently generated from third parties advertising on Twitter. The company generated 90% of revenues from advertising in the fiscal years ended December 31, 2014. Twitter Inc. generates substantial revenue through the sale of three Promoted Products: Promoted Tweets, Promoted Accounts and Promoted Trends. Advertisers, however, do not have long term commitments with Twitter Inc.
Financials and Market Scope
Company’s revenue for the year ended December 31, 2014 was USD 1.40 billion, which represents a 111% increase compared to 2013. The Company generates majority of revenues from the sale of advertising services with the balance coming from data licensing arrangements and mobile advertising exchange services. Mobile has become the primary driver of the company’s business and the Company has been able to generate significant revenues through their mobile applications. Approximately 85% of advertising revenues was generated from mobile devices in the year ended December 31, 2014.
Cost of revenues consists primarily of data center costs related to the company’s co-located facilities, which include lease and hosting costs, related support and maintenance costs and energy and bandwidth costs, as well as depreciation of the servers and networking equipment, and personnel-related costs, including salaries, benefits and stock-based compensation, for the operations teams. Cost of revenue also includes allocated facilities and other supporting overhead costs, amortization of acquired intangible assets and capitalized labor costs. Many of the elements of the costs are relatively fixed, and cannot be reduced in the near term to offset any decline in the company’s revenue.
Monthly Active Users (MAUs) are Twitter users who are logged in or were otherwise authenticated and accessed Twitter through the website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websites in the 30-day period ending on the date of measurement. Average MAUs for a period represent the average of the MAUs at the end of each month during the period. MAUs are a measure of the size of the company’s active user base. In the three months ended December 31, 2014, the company had 288 million average MAUs, which represents an increase of 20% from the three months ended December 31, 2013. The growth in average MAUs was driven primarily by organic growth and growth initiatives. In the three months ended December 31, 2014, the company had 63 million average MAUs in the United States and 225 million average MAUs in the rest of the world, which represent increases of 17% and 21%, respectively, from the three months ended December 31, 2013.
The company faces intense competition from companies such as Facebook, Google and LinkedIn. The Business Model of Twitter, although based on revenues from advertising, which is similar to competitors, is unique in its offering.
The company has a long term debt of USD 1.495 billion at the end of 2014 and has a current market capitalization of USD 33 billion with a price of USD 50.37 per share with an estimated FY 2015 PE multiple of 132.33. The Market Capitalization to Sales ratio is 23.57. The company has not declared any dividend.