Buy Twitter (TWTR) As Live Video Push Starts to Pay Off

Twitter (TWTR ) has for years struggled to grow its user base, but the social media company’s push into live video could turn into a game-changing move. With that said, let’s dive into the details of Twitter’s streaming video future as it continues to secure big-time partnerships and more advertising dollars.

Twitter reported GAAP profitability for the first time in the fourth quarter. This positive trend continued in the first quarter, with Twitter posting GAAP earnings of $0.08 per share. Meanwhile, the company’s Q1 revenues surged 21% to reach $665 million, which topped our Zacks Consensus Estimate of $609.3 million by a healthy margin.

The social media company expanded its daily active user based by 10% year-over-year, while its monthly active user base reached 336 million. This marked only a 3% year-over-year gain, but 10 million new MAUs helped the company boost its ever-growing advertising revenue.

Advertising

Twitter’s advertising revenues climbed 21% from $474 million in the year-ago period to $575 million. Investors will notice that Twitter’s ad revenue surge matched its overall revenue climb. The simple reason is that like fellow social media firms, including Facebook (FB ) and Snapchat parent Snap (SNAP ) , Twitter makes a large chunk of its money from advertising—roughly 86% in Q1.

The social media company’s international ad revenue climbed by 52%, bolstered by growth in the Asia-Pacific region, highlighted by strong video performance in Japan. This advertising growth is what should give people hope that Twitter might finally be ready to turn into the money-maker many hoped it would be years ago.

Twitter’s quarterly ad engagements also surged 69% in Q1, while its cost per engagement dropped 28% from the year-ago quarter. Video accounted for more than half of Twitter’s advertising revenues and was also the company’s fastest growing ad segment.

Live Video

Twitter’s march toward live video success has been slow, but it seems that the company might have finally hit an inflection point. The company streamed more than 1,300 live broadcasts in Q1. Investors should also note that roughly 80% of these live-streams reached a global audience.

Looking ahead, the social media company announced that it signed more than 30 new video deals last quarter. This includes live-streaming rights, highlights, as well as VOD partnerships.

On its surface, 30 new video contracts might sound insignificant. But Twitter has really positioned itself well as the world shifts more and more toward streaming. The company locked down a new deal with Fox Sports (FOXA ) for multiple FIFA World Cup-related shows—which is by far the most popular sporting event in the world.

Twitter also inked new deals with MLB and MLS, along with NBCUniversal (CMCSA ) , Viacom (VIAB ) , Disney (DIS ) , and others. Twitter now has a live video foothold in everything from video gaming and sports to news and entertainment.

Looking Ahead

Twitter’s live video push and its bottom line growth have also made its stock look far more reasonably priced. Twitter is now trading at 41.7x earnings, which marks a substantial discount compared to the “Internet – Software” industry’s average P/E of 58.3. Furthermore, despite its strong first quarter, Twitter stock currently sits roughly 20% below its 52-week high, which means now might be a great time to buy.

Twitter’s full-year revenues are also expected to climb roughly 19% to hit $2.89 billion, based on our current Zacks Consensus Estimates. Meanwhile, the company’s fiscal 2018 adjusted earnings are projected to soar by 66% to reach $0.73 per share.

Bottom Line

The social media company became famous and hugely important for its breaking news and instant dissemination capabilities. Now, Twitter can couple its interactivity and breaking news features with both stand-alone and complimentary live video.

Twitter is still nowhere near where Facebook and other tech companies are in terms of live video reach. But it is not hard to envision Twitter becoming a much more legitimate live streaming video player as it continues to secure deals with major content creators.

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