Twitter is tiny compared to the companies it is often compared to, such as Facebook, Yahoo and Google. That’s why it should be treated with caution by investors, according to a note to investors by Morningstar Equity Research analyst Rick Summer.
Most of Summer’s analysis of Twitter concerns the question of whether Twitter is a “wide moat” or a “narrow moat” company. The “moat” concept refers to how easily a company can defend itself against new competitors. Size is a big part of it: Companies with big, established customer bases find it easier to withstand or squash competitors.
Summer is concerned that because Twitter has 232 million monthly active users — a lot, in other words — that people will think its business is relatively established and impregnable.
Not so, according to Summer:
Taken at face value, we don’t believe Twitter’s reach alone today is sufficient to create the massive competitive advantages that would support a wide moat. For example, in the United States, companies such as Yahoo (narrow moat), Google (wide moat), and Facebook (wide moat) have much greater reach, both for desktop and mobile users
Some decidedly old school companies like Glam, Turner, and eBay have far bigger reach than Twitter, according to comScore. Twitter is more like Tumblr in reach, than AOL.
And it’s the same in mobile apps, Summer says, with Twitter coming up short in terms of per cent penetration of users, behind Yahoo Weather and Instagram.
That’s the bad news.
There is good news, too, of course. Morningstar says Twitter is poised for growth, and in fact has already overtaken LinkedIn in terms of revenue per user:
Twitter has continued to improve its standing and has surpassed LinkedIn LNKD, though it continues to lag Facebook.
The Twitter-LinkedIn comparison is interesting, because they’re both about the same size. LinkedIn has 238 million users and received 189 million unique user visits monthly in its most recent disclosure.
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