In this video Chief Investment Officer, Steve Johnson, talks to Gareth Brown about Twitter, a stock that we have watched from the sideline for more than half a decade before buying it mid 2020. It is now up 80% since our initial purchase. See transcript below.
Hi, I’m Steve Johnson, Chief Investment Officer at Forager funds and Gareth Brown, Portfolio Manager on our International Fund is here with me to talk Twitter today. We wrote the stock up in a recent quarterly report, probably a name familiar to you already, but the investment thesis is very interesting.
The share price has run up some 80% since our purchase, but in this market Gareth, where everything’s hot, I wouldn’t read too much into that in terms of the actual investment case working out, but you’ve seen some pretty good news.
The long story for Twitter is that it has been under monetized. Now the argument between the bulls and bears for at least five years has been around whether it can monetize. Our thesis when we bought, sort of more than six months ago now, was that there’s a thing called the ad stack. It’s basically a big chunk of code that the rest of Twitter hangs off and it was a big monolithic block of code.
So trialling new things in Twitter was fraught with risk that you were bringing the whole system down, and so everything was prioritized and tested and it just took a long time to innovate. One of our theses back then was that the new ad stack was more modular and they would be able to iterate, as they call it in Silicon Valley, and experiment much quicker. And we’ve seen a lot of evidence that that is going on right now in terms of its ability to try new things and that’s part of the bull thesis here.
Just anecdotally, I was talking to a marketer last week who had been talking to their digital agency who were very excited about Twitter, which was a platform that they hadn’t been able to get to work before in terms of targeting the specific type of people that they’re after, but are now having a lot of new success with these new products that Twitter is offering up. And it’s not just that traditional piece, I think that’s the biggest upside but there are new products coming there too.
The brand advertising is traditionally more than 80% of the revenue here, that is going strong. There’s a whole bunch of new alternative revenue streams that they’re considering like subscriptions. Then if they crack the targeted advertising side of things, you’ve got significant upside.
I got a chart here up on the screen, that is the long-term growth in users of Twitter. It’s never been the problem as you can see, it’s always been growing quickly, but if we can combine those growing users with a rapidly growing revenue per user, we should see some pretty good outcomes at the bottom line.
That’s the thesis.
It’s a market where everything that goes in, goes up at the moment and we are really focused here on making sure that our investment thesis are playing out rather than just getting excited about share price rises. But Twitter is one where both seem to be headed in the right direction. Thanks for tuning in.
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