Jumaat, 1 November 2013

The Star Online: Business

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The Star Online: Business

FB’s ad warning sounds a note of caution for Twitter


SAN FRANCISCO: Facebook Inc's investors and other proponents of the social network like to say that it captures one of the greatest concentrations of human attention on the planet and thus offers a boundless opportunity for advertisers.

But Facebook Chief Financial Officer David Ebersman on Wednesday cast doubt on those assertions by suggesting that there may be a limit on how many ads Facebook can show users before they get turned off.

Ebersman's warning carries far-reaching implications for not only Facebook but also other social media companies including Twitter Inc, which is in the middle of a roadshow to promote its IPO to investors.

Twitter has yet to turn a profit, but it is pitching an advertising business model similar to Facebook's.

"It's important for investors to realise that there is a limitation on the mobile ad revenue that can be generated. The sky isn't the limit when it comes to that," said Jeff Sica, the founder of Sica Wealth Management. "That's the issue with Facebook. That will be the issue with Twitter."

Seven-year old Twitter faces an additional challenge: its active user base, now at 230 million, has expanded much more slowly compared to Facebook, due in part to its struggle to retain newcomers. A recent Reuters-Ipsos poll found 36% of Twitter users do not use the online messaging service.

"You don't know how many people sign up and don't use it, how many abandoned accounts they have," said Adam Grossman, an analyst at Middleton & Co who attended a roadshow lunch presentation by Twitter executives in Boston on Thursday.

Twitter has set a price range of US$17 to US$21 per share for its IPO, which aims to raise up to US$1.6bil. The price range values Twitter at up to US$11bil, less than the US$15bil that some analysts had expected.

One investor who attended the Thursday luncheon said Twitter's ubiquitous brand name will draw some investors.

"It's a company that has changed the world so I wouldn't bet against it," said the investor, who did not want to be identified. "But they also haven't created a business model which has proven that they can continue to grow at 100% a year and be profitable."


Twitter is trying to expand its ad business in other ways. This week it closed a US$350mil deal to acquire MoPub, an ad network that serves ads within mobile apps.

"The consumer eyeballs and the amount of ads they can absorb without being irritated, is finite," said Rich Wong, a venture capitalist at Accel Partners, who invested in MoPub and AdMob, a mobile ad network that Google Inc acquired for US$750mil.

With MoPub, Twitter will be able to serve ads in other apps to grow revenue without cluttering its own users' Twitter streams, Wong said. "By leasing real estate, you can expand by orders of magnitude the eyeballs you can get to," he said.

It remains to be seen whether MoPub can unearth new revenue for Twitter. But some industry experts liken the deal to Google's US$3.1bil acquisition of DoubleClick in 2008, which helped the search giant improve its ability to place targeted ads on Web pages across the Internet, not just google.com.

In the case of MoPub, Twitter will serve ads within third-party mobile apps, such as games, rather than websites.

In late September, Facebook also resumed work on its own mobile ad network after it appeared to put the project on hold earlier in the year, according to several tech blogs.

The renewed effort to seek other sources of revenue could be explained by Facebook's reluctance to show more than one ad per 20 stories in a user's news feed. Ebersman told analysts on Wednesday that the 5% ad ratio would not increase by much in the future.

That surprised some analysts and investors who had expected a higher rate.

"Five percent is relatively low," said Brian Blau, a Gartner analyst. "I'm surprised that it's only 5%. I was anticipating more, to really push the boundaries."


According to its investor prospectus, Twitter now makes a little over US$0.65 per user compared to Facebook's US$1.72. Analysts believe Twitter has room to grow in getting more revenue per user because Chief Executive Dick Costolo has been cautious so far about injecting more ads into Twitter streams.

Twitter's format and the nature of its fast-scrolling content also differs from Facebook, which means Twitter users may be more tolerant of ads, said Gartner's Blau.

But if Twitter's ability to show more ads becomes limited, then it would have to seek higher ad prices by promising marketers the ability to target users with greater accuracy.

In the past year, Twitter has expanded its targeting features to show ads to users who live in certain metropolitan areas, or show interest in certain topics.

Twitter infers what its users are interested in based on who they follow and what they tweet. In July, the company also began to use cookies to track the Web pages that its users visit, a commonly employed technique among Internet firms.

But even when displaying the highly personalised ads prized by marketers, social media companies have had to weigh the value of the ad versus their "creepiness factor," which could scare away fickle users – Reuters.

Wall St ends higher after factory data; Dow, S&P up for week


NEW YORK: U.S. stocks rose on Friday after surprisingly strong manufacturing data overshadowed expectations that the Federal Reserve might reduce stimulus earlier than expected.

The Dow Jones industrial average and the S&P 500 rose for the week as well, their fourth straight week of gains.

Factory activity expanded around the world, several business surveys showed, with Chinese manufacturers reporting the fastest upturn in 18 months. The Institute for Supply Management (ISM) said on Friday its index of U.S. factory activity rose to 56.4 in October, its best reading since April 2011.

While the news underscored views that the Federal Reserve may be considering scaling back its stimulus sooner than some market participants have been expecting, it also gave investors surprising evidence of the manufacturing sector's strength.

The reports "confirmed that maybe the economy isn't quite as weak or rolling over" as some expected, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, which manages about $58 billion in assets.

The Fed on Wednesday decided to continue its stimulus program, citing economic weakness.

Boeing Co shares gained 1.9 percent to $133.03, a day after it said it would increase production of its 737 aircraft to 47 planes per month by 2017 from 38 now - a move that analysts said bodes well for the company.

The Dow Jones industrial average rose 69.80 points, or 0.45 percent, to end at 15,615.55. The Standard & Poor's 500 Index gained 5.10 points, or 0.29 percent, to finish at 1,761.64. The Nasdaq Composite Index added 2.34 points, or 0.06 percent, to close at 3,922.04.

For the week, the Dow rose 0.3 percent and the S&P 500 gained 0.1 percent, while the Nasdaq slipped 0.5 percent.

On the Nasdaq, shares of First Solar Inc jumped 17.6 percent to $59.14 after the U.S. solar panel manufacturer's results beat forecasts and the company raised its full-year profit outlook.

Among decliners, shares of Chevron Corp slid 1.6 percent to $118.01 after third-quarter revenue fell short of expectations.

American International Group Inc dropped 6.5 percent to $48.28, a day after the insurer reported earnings that slightly beat expectations. However, analysts expected better results in the insurer's consumer lines business and said it benefited from a favorable tax rate this most recent quarter.

The latest results show the mixed picture in earnings. With about 74 percent of S&P 500 companies having reported results so far, 68.5 percent have topped Wall Street's expectations, above the long-term average of 63 percent, while just 53.3 percent have topped revenue forecasts, below the 61 percent average since 2002, Thomson Reuters data showed.

Although the three major U.S. stock indexes ended Friday's session with modest gains, the market's breadth was negative.

Decliners outnumbered advancers by a ratio of 8 to 7 on the New York Stock Exchange, while on the Nasdaq, three stocks fell for every two that rose. - Reuters

Some Wall Street brokerages push up Twitter IPO targets


SAN FRANCISCO: Morningstar on Friday joined three other brokerages in setting price targets for Twitter Inc well above its IPO price range, suggesting the stock has room to rise at least 30 percent.

The Wall Street brokerage on Friday set a price target of $26 a share, compared to the initial public offering's $17 to $20 indicative range. Last month, Pivotal Research had set its price target for the social media micro-messaging company at $29 a share, SunTrust at $50 and Topeka Capital at $54.

Twitter, which is wrapping up its first week of meetings with prospective investors across the United States, will arrive on the New York Stock Exchange with a fraction of the users and revenue - and hype - that accompanied Facebook Inc's much-heralded debut last year.

Twitter said in October it doubled its revenue in the third quarter to $168 million, but its losses widened as costs grew. It has never made a profit.

Morningstar analyst Rick Summer said Twitter's user growth will form a "critical mass" that would capture new advertising budgets. Twitter, which has partnered with broadcasters to position itself as a "second screen" to traditional TV, could receive a slice of advertising deals that previously would have gone to TV exclusively.

"For example, the company recently agreed to a commercial deal with the National Football League to distribute proprietary content (short replays) to Twitter users," Summer said in a research note.

Some analysts say Twitter could grow above the valuation of roughly $11 billion inferred by the company's IPO plans. Others worry, however, that Twitter has so far offered scant evidence it can generate enough revenue with its staple "promoted tweets" ad product, especially without significantly growing its number of users - never a guarantee in the fickle world of social media.

Investors who met with Twitter executives during this week's roadshow say they are optimistic about the deal, in part because they see little sign of some of the exuberance that preceded Facebook's IPO and in part because of what they argue are reasonable valuations.

At an IPO price range of $17 to $20, Twitter would be valuing itself at 17 to 20 times trailing 12-month sales, according to Reuters' calculations based on IPO filings, excluding shares issued in the future. Facebook trades at about 17 times trailing 12-month sales and LinkedIn Corp at roughly 19 times.

Final pricing is expected on Nov. 6.


Jeff Sica, founder of Sica Wealth Management, whose clients own shares in Twitter, said that at an investor lunch, "All they could really talk about is a one dimensional way to make money" in breaking news and media. "That's when you start to see the limitation for revenue generation going forward."

Also, Facebook on Wednesday said it would cap how often ads are shown to users, leading analysts to believe the company may have discovered a limit to how many social media ads can be exposed to users before they get irritated. In the very long run, that could hold implications for Twitter, given their similarity in advertising models.

But bullish analysts note explosive revenue gains by both companies.

Brian Wieser, an analyst at Pivotal Research, saw positive signs in Twitter's third quarter, saying that the 123 percent revenue growth exceeded his expectations while user growth appeared robust.

The bull case for Twitter was first made weeks ago by Robert Peck, an analyst at SunTrust Robinson Humphrey who slapped a $50 price target on Twitter before the company priced its shares.

"Many investors will look at Twitter vs. Facebook, as an appropriate comparison. While we think there are many similarities between the two companies, we think Twitter is a unique company, with aspects of Google, Facebook, LinkedIn and Yahoo in its DNA," Peck said.

Topeka Capital similarly saw value in Twitter's unique network. "Twitter has become synonymous with social TV," analyst Victor Anthony wrote. "If Twitter captures just 1 percent of these global TV ad budgets, that could mean over $2 billion in revenues for Twitter annually." - Reuters

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