Twitter (TWTR) is finally making sense to me.
Well, its excessive valuation, that is.
As a communications and bonding tool, Twitter was long ago easy to grasp. Wrangle up some thoughts on hot stocks, the dreary weather or fluffy cats and get to typing 120 characters or less (make it less, trust me). Or, live tweet a Federal Reserve press conference to boost your follower total and be known as a go-to, trusted source. Simple stuff, really. However, although Twitter has always been easy for this millennial to get, the valuation of the company has tended to be tough to swallow. Sure, Twitter's business reeks of potential, but that financial potential hasn't led to stellar earnings reports by any stretch of the imagination.
Now, enter live-streaming app Periscope. Launched yesterday as an answer to the popular Meerkat (which just raised a nice chunk of money, despite Twitter kicking it off the service -- asset bubble spotting baby!), Periscope allows Twitter users to live broadcast their lives. For example, I live broadcast my trip into the office on Wall Street this morning. While this wasn't riveting original programming, in my mind, it could be perceived that way to a person in Europe who is a follower and will never visit the New York Stock Exchange. I think that short snippet of coverage further strengthens my credibility in financial services and shows that I am "in the heart of it all." With more credibility, the more a follower will engage. I want to engage, that's how learning is done.
But, above all else, this brief exchange opened up my eyes to why Twitter is valued the way it's valued. In short, Twitter is finally starting to show investors its hand, the potential it has to change society and shake up sleepy industries with fat cat execs at the helm. Sure, Periscope isn't going to drive Twitter's current quarter revenue or profits, but think out three years down the line the way high-powered execs often do. Here is what I see in something like Periscope (which you should download for free today):
- Potential original content from Disney (DIS).
- More breaking news potential, keeping people on the Twitter platform, and making it easier for Twitter's ad people to sell, sell, sell.
- Ad placement in the live broadcasts of those with the largest Twitter followings. For instance, if I am Coca-Cola (KO), I would love to place an ad on a Warren Buffett live streaming of him drinking a high-calorie Coke on his walk on stage at the Berkshire Hathaway (BRK-A, BRK-B) annual meeting.
- The potential to fundamentally alter the cable industry, which is not evolving quick enough. Personally, I believe Twitter will be acquired by a cable company at some point.
- The potential to spur an upgrade cycle for Apple (AAPL) and Android products. Don't think I am crazy. To use these new apps one has to have a newer smartphone.
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