As rumors of a Twitter Inc (NYSE:TWTR) acquisition spread fast and hedge funds come to take a bite of Twitter Inc’s stock in hopes of getting lucky in case of an acquisition, Daniel Niles of AlphaOne Capital Partners appeared on CNBC to throw some light on his journey from never liking Twitter Inc’s stock to having a change of heart, as he now sees potential profits in its future. According to Niles, Twitter Inc’s search deal with Google Inc (NASDAQ:GOOGL) is the main catalyst here.
“Their user growth had massively slowed down but what we finally see is them making moves between different features such as the instant timeline, or while-you-were-away, but more importantly the search deal with Google that they went ahead and signed where Google will be able to access all the tweets coming in; be able to show that when you do a search. We think that’s going to really help get their monthly active users. […] I think it’ll really enable them to get that cranked up and moving in the right direction again,” Niles said.
It would not be a bad idea for us to give some credit to Twitter Inc’s CEO Dick Costolo who is taking all possible measures in turning investors’ attention away from slow user growth. Through this search deal with Google Inc (NASDAQ:GOOGL), Costolo has given his investors a very good reason to stay tuned. This deal will means that Google Inc will showcase tweets on its search page in real time, making Twitter Inc’s tweets available to 1.5 billion Google Inc Search users, which should mean an increase in subscribers for Twitter Inc (NYSE:TWTR) and additional revenue. Even if most of them don’t end up signing up, Twitter Inc would still be benefiting, as they would be collecting revenue by showing advertisements to those random users – which Twitter Inc calls its ‘logged-out users’.
“The real inflection point here, we think, is this deal with Google. Google has got 1.5 billion users that are now going to get access to the tweets in real time. Twitter’s got less than 300 million. They have got 750 million if you include all the logged-out users. You’ve got Facebook sitting at 1.4 billion. So that’s really what you’re looking at that’s something that’s going to start to happen in about a month’s time when this gets launched. […] We were short Facebook when it came public. The inflection point at that point was they had started to really focus in on mobile which they had’nt been really focused on since they came public,” Niles said.
Niles did not deny that a possible acquisition can benefit investors in a big way, but he maintained there are other factors which investors should notice in terms of looking at Twitter Inc’s overall growth potential.
“The second piece of it is that you’ve got new services such as timeline, while-you-were-away, that I think are helping in terms of adding new users. And finally you’ve got the ad load which is quite honestly a lot less than other internet sites; at about 1.3%. They talked about this; they think that can reach 5%. So, even if you make the assumption that they are not going to add any more users but they are going to increase their ad load from about 1.3% to 5%. You’re talking about revenues tripling,” Niles said.
This is a big reversal from a major investor who has been short on Twitter Inc (NYSE:TWTR)’s stock in the past but Niles is right on a number of points. With this strategically important search deal with Google Inc (NASDAQ:GOOGL) under its belt, Twitter Inc has never looked more focused to spread its wings as it does now.
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