Why Promoted Stickers May Not Really Lift Twitter Inc Stock

• On the surface Promoted Stickers comes across as a huge revenue opportunity for Twitter.
• Given the challenges, the financial impact of the move may be less significant.
• Conservative investors would do well to wait it out, till the impact of live content streaming is visible.

San Francisco, California based microblogging service Twitter (NYSE:TWTR) recently launched a new ad format on the platform dubbed Stickers or Promoted Stickers, in an exclusive launch with Pepsi. The move is Twitter’s latest attempt to inject some momentum into its plummeting growth rates, and to win back advertisers who seemed more inclined to spend their ad Dollars on other platforms. While similar attempts by Twitter competitors like Line show that ‘Stickers’ could be a significant opportunity, the micro-blogging site will have to overcome some challenges to actually make Stickers count.

The Revenue Opportunity In Promoted Stickers

For Twitter of late, it’s all about revenue. While this was the one metric that held up valuations for the microblogging platform for a long time, growth has plummeted in recent times. With growth slowing to about 20% in the latest quarter, Twitter is making every attempt to rejuvenate growth. It’s latest attempt is Promoted Stickers, which it debuted about a week ago on the platform in an exclusive launch with Pepsico (NYSE:PEP).

Promoted Stickers allows brands to create and promote custom stickers that Twitter users can add to their photos. According to Twitter, it’s “a huge opportunity for brands to drive brand affinity and raise awareness of their message at scale”.

While branded emojis or stickers are new to Twitter, they aren’t really a first on social media platforms. Sticker-based promotions have become popular on platforms like Line and Snapchat. Japanese messaging service Line for instance, is believed to have generated $800 million in revenue from sticker-based promotions during the last year. What’s more, Line, which recently went public, has about 218 million active users, much lower than Twitter’s tally of over 300 million monthly active users. So, potentially the opportunity could be significant for Twitter, which generated under $2.5 billion in revenue in the last twelve months.

Some analysts are also excited about the idea because of the very nature of such advertising. First, it’s probably better than native advertising. Native advertising aims to be non-intrusive to the user experience, camouflaged to blend in to the platform it’s placed on. Sticker-based promotions take it a notch higher, where users actually generate the ads themselves by adding promotional stickers to their photos, blurring the line between user generated content and ads. Second, this presents an opportunity for platforms like Twitter to up the ad-load in a much more disguised, less intrusive manner.

Yet, It’s Not That Simple

For starters, data shows that usage of such stickers peaked in earlier years at about 12% of total messages and is now trending lower on Line, both as a percentage of total messages sent and in absolute terms. As a percentage of messages sent on the platform, stickers now account for under 10%. The numbers have also plateaued in absolute terms, implying that the revenue number discussed earlier in this post is probably as big as this opportunity can get.

Then there’s the demographic aspect. Line, which has successfully leveraged a similar product, is mostly popular with audiences in some of the Asian countries. Line has large market shares in Japan (94%), Taiwan (83%), Thailand (85%) and Indonesia (66%). However, it’s not such a big draw in other geographies. There are obvious demographic differences that change the dynamics for Twitter.

The other factor that can’t be ignored is how such products fit in with the inherent nature of a given platform. Quoting from a post on Motley Fool:

Companies in Asia often offer free Line stickers, which replace commonly typed phrases like “thanks” or “good night.” The branding on those stickers, which often feature company mascots instead of logos, usually isn’t intrusive.

Snapchat also lets users plaster branded filters (stickers, frames, and drawings) on their photos. Snapchat’s approach also makes sense because the filters can act as a more colorful “check-in” to locations.

Note how the two platforms and their usage of sticker-based promotions differs significantly from that of Twitter’s. Line is a private messaging app, and the use of such stickers is an obvious fit. With one in every 10 messages sent being a sticker, the numbers speak for themselves. In the case of Snapchat, the app is inherently a photo/video sharing platform. Twitter, is neither, and it’s hard to see how such a trend will catch on as much with Twitter users.

Last, but definitely not the least, advertiser preferences might not support sticker-based promotions as much as they do other forms of ad-spends. While this recent post on Digiday doesn’t rule out Twitter’s ability to offer real-time targeting, it does highlight the fact that advertisers are more willing to spend their ad Dollars on performance-based digital ad formats. And most performance-based ad formats usually carry a call-to-action as opposed to being purely focused on branding.

So, while Promoted Stickers could potentially rake in some much needed ad-revenue for Twitter, the opportunity might not be as huge as it appears on the surface.

Summing It Up

On the surface, Promoted Stickers does seem like a good move for Twitter. After all, Twitter will welcome any additions to its revenue base, no matter where they come from. However, while promotional stickers have helped companies like Line generate a reasonable amount of revenue, the dynamics could be different for Twitter.

While the opportunity seems huge at first glance, the eventual impact of Promoted Stickers might be less significant. There’s probably more potential in Twitter’s recent live streaming push which is aimed at bringing news, sports and a host of other live events to the platform. Twitter has also shown a significant improvement in its free cash flows, recording positive free cash flows for three quarters in a row for the first time. Given the licensing costs associated with streaming content, Twitter will find these cash flows handy.

While the narrative is less pessimistic for Twitter than it was earlier this year, conservative investors would do well to avoid the Twitter stock till the impact of live streaming on engagement levels and revenue becomes visible.