Richard Windsor
11 April 2017

Twitter – End of days

The loss of the NFL is a disaster

Twitter has lost its deal to stream certain NFL games which punches a potentially fatal hole in its strategy to break out of its niche of microblogging. Amazon has reportedly paid $50m for the rights to stream 10 Thursday night NFL games for the coming season. This is 5x what Twitter paid in 2016 but we do not think that this is a case of the little guy being priced out of the market. Instead, that Twitter got a very good price from the NFL because of its promises to be able to leverage its social interest graph to generate meaningful advertising revenues as well as insights that could be shared back to the NFL.

Clearly, Twitter has not been able to live up those promises which is why the rights have been sold to a more conventional bidder who is simply paying a more regular price for the rights. This is nothing short of a complete disaster because expanding into media consumption was Twitter’s one hope to break out of its niche and resume subscriber and revenue growth. The loss of the NFL is an indication that this strategy is failing and that despite its efforts, it is nothing more than a broadcaster of short text messages and a second-rate instant messaging platform. Blogging and Instant Messaging make up a total of 16% of the Digital Life pie which we have long believed that Twitter has already fully monetised. We remain convinced that this is the reason for its growth grinding to a halt.

If Twitter can entice its 300m users to do more with Twitter beyond these activities, then there is scope for revenues to begin growing again as it will have more traffic to monetise. This is why the video strategy was so important. Media Consumption makes up another 10% of the Digital Life pie and had Twitter been able generate significant traction from it, there would have been significant upside from current revenue levels. Without this growth, we still fear that Twitter’s shares will fall below $10 because even at $14.5, with no growth, the shares are still expensive. This loss makes it even more likely that 2017 is going to be a stagnant year where the realities of the company’s predicament really begin to become apparent. This could drive the shares to $10 or below. We continue to see Twitter as a potential acquisition target but would expect to see the shares touch $10 before real interest is triggered. We see no reason whatsoever to go bargain hunting as there is no bargain to be had.

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