Could Twitter challenge Google GOOG -0.83% and Facebook for as dominant advertiser? According to one bullish analyst at RBC Capital Markets, the far-fetched-sounding scenario is actually quite likely.
RBC teamed up with Ad Age to survey over 900 advertisers to get a sense of what advertisers think of Twitter’s potential as a marketing platform. The results were so positive that an RBC team of analysts led by Mark Mahaney are raising Twitter’s target price to $60 per share, up from $33 per share. (Not factored into either the Ad Age survey nor the RBC report was Twitter’s blocking-now-mute-wait-just-kidding kerfuffle that incensed users Thursday night.)
“We are positive on TWTR’s ability to become one of the web’s leading utilities (alongside Google, Amazon, Facebook),” Mahaney writes. “Twitter has displayed very robust growth in key metrics and we have confidence that this momentum can continue as the company develops its advertising platform. What’s more, Twitter is one of the best plays off two of the biggest secular growth trends in the internet space: the rise of the mobile internet and the migration of TV ad budgets online.”
The RBC-Ad Age survey found that of all advertisers polled, 71% were already using Twitter as a marketing channel and in the next 12 months, 80% plan to use the microblogging site for advertising purposes. What’s more, 60% of advertisers who use Twitter for marketing purposes said they plan to increase their Twitter spending next year, a statistic that Mahaney says indicates strong momentum for Twitter’s advertising revenue.
Mahaney notes that Twitter is already well-positioned to compete with the likes of Google, Facebook and other sites that rake in money from advertising. When respondents were asked to rank the six major internet ad platforms in terms of effectiveness, Facebook and Google were nearly tied at the top, but Twitter came in as a fairly close third, ranking above LinkedIn LNKD -1.05%, YahooYHOO +0.91% and AOL. These respondents also ranked Twitter as the third-highest recipient of their ad spending dollars, but ranked Twitter second only to Facebook when it came to ad spending growth. Mahaney says this is impressive given Twitter’s relative youth compared to the likes of Yahoo, AOL and Google.
“We think it is encouraging that Twitter ranks higher in terms of spending growth than current spend,” Mahaney writes. “Twitter should be able to drive strong advertising revenue growth through product improvements and higher advertiser adoption.”
Mahaney also reiterates Twitter’s potential synergies with television, adding that the site is poised to benefit from advertisers shifting their TV ad budgets online.
“According to Magna Global, the 2013 global market for TV advertising will likely be north of $200B, almost twice as large as the market for Internet advertising. With just $604 million in projected 2013 revenue, Twitter is obviously still a minuscule percent of either of these markets,” Mahaney writes. “But expanding its addressable market should help to aid its revenue growth in the years to come.”
Of course, Twitter’s future isn’t all unicorns and rainbows: Mahaney says there is a downside scenario in which Twitter fails to adequately monetize its users and sees its engagement decelerate. He also cites as a risk the management team’s inexperience in managing a large public company.
Twitter is currently trading a little over $58, just $2 shy of RBC’s price target. It is poised to end Friday trading a full 5% higher than Thursday’s close. Meanwhile, marketing competitor and soon-to-be S&P 500 newbie Facebook was up 2.8% just before the market close, while Google was down 0.67%. Year-to-date, Facebook is the winner of the two, posting an 85% gain against Google’s 47.9% increase.
- Twitter Could Challenge Google And Facebook On Advertising Front, Analyst Says (forbes.com)
- Mark Mahaney: Twitter Is Worth $33 a Share (blogs.wsj.com)
- Twitter Jumps on Analyst Love (thestreet.com)
- Twitter shares set new high on ad growth potential (hispanicbusiness.com)
- Twitter shares set new high on ad growth potential (bostonherald.com)