Twitter (TWTR - Analyst Report) recently announced that it has acquired New-York based mobile ad technology firm, TapCommerce. Per sources, the microblogging company had to cough up nearly $100.0 million for the deal. However, the exact amount was not revealed.
TapCommerce deals in mobile retargeting. The company specializes in targeting consumers after they have downloaded an app by persuading them to keep coming back. This is especially useful for apps that sell goods or services, such as travel, retail or mobile gaming. Fab and eBay (EBAY - Analyst Report) are some of TapCommerce’s clients.
Meanwhile, Twitter recently rolled out its mobile app install ads worldwide. This will allow users to directly install advertised apps on their Android phone or iPhone. Twitter believes that TapCommerce’s mobile ad technology will enable the company to improve its recently launched ads.
Moreover, these ads will be delivered trough its Mo-Pub ad-exchange which, the company had acquired in October last year for a sum of $350.0 million. We believe that the acquisition will beef up Twitter’s mobile ad offerings, which in turn will help the company to attract greater ad revenues going forward.
Per Gartner, mobile advertising spending is forecast to reach $18.0 billion in 2014, while the market is expected to grow to $41.9 billion by 2017. This presents a significant growth opportunity for Twitter. eMarketer forecasts Twitter's global user base will increase 24.4 % in 2014, led by big gains in countries like Indonesia and India.
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 the top line.
In such a scenario, acquisitions such as TapCommerce will expand Twitter’s product portfolio. It 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 and will help it to attract new advertisers.
Nevertheless, user growth concerns, intensifying competition from Facebook (FB - Analyst Report), Google 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).