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Amid growing rumors of buying a music service provider, Twitter Inc. (TWTR - Analyst Report) recently acquired native-ads developer Namo Media for an undisclosed amount (probably less than $100.0 million). Following the news, Twitter’s share price increased 3.01% (99 cents) to close at $33.89 on Jun 5, 2014.

Namo Media specializes in developing native-ads, which can be featured as a promoted tweet on Twitter or suggested post on Facebook (FB - Analyst Report). Native ads are high quality content ads that are developed in collaboration with brands and online publications.

According to IPG Media, native ads are viewed for the same amount of time as editorial content and are much more likely to be shared than a banner ad. Native ads are more engaging than sponsored or banner ads, which make them an effective tool for advertisers to reach an audience.

Twitter will integrate Namo Media to its MoPub mobile ad-exchange, acquired in October last year for approximately $350.0 million. Namo Media’s native mobile platform will help consolidate Twitter’s position to attract more advertising dollars amid intensifying competition from the likes of Facebook, Google (GOOGL - Analyst Report) and Pinterest.  

Twitter’s top line is significantly dependent on ad revenues, which contributed 90.2% of revenues in the first quarter of 2014. Mobile advertising revenues were more than 80.0% of total advertising revenue in the quarter, up from 60.0% in the year-ago quarter.

Twitter launched a number of new products for advertisers during the quarter. The company allowed marketers to create tailored audiences from email lists and customer relationship databases. Twitter also enabled advertisers to target TV conversations for Spanish-language television and connect with users through Promoted Accounts in search.

Although Twitter’s management remains optimistic about future user growth, slowing user base is a major concern, as it can keep advertisers away from the service, thereby hurting top-line growth.

In such a scenario, acquisitions such as Namo Media expand Twitter’s product portfolio. This will help it to attract big advertising agencies in the long run.

Twitter’s recent deal with Omnicom Group (OMC - Analyst Report) is also expected to be a major growth driver. The deal boosts Twitter’s status as an advertising platform that will help it to attract new advertisers.  

Nevertheless, user growth concerns, intensifying competition and higher operating costs are the major headwinds in the near term, which will remain an overhang on the stock.

Currently, Twitter has a Zacks Rank #3 (Hold).

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