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Is Twitter Vulnerable to Competition from Snap?

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Snap is set to stir up some social media competition

Twitter (TWTR) could face stiffer competition from Snap (SNAP), which will likely try to prove its value to shareholders as a public company. Yet Twitter’s revenue and subscriber growth rates have been disappointing in recent years due to weak user engagement.

Twitter’s revenue rose 1% YoY (year-over-year) in 4Q16 while monthly active users rose 4.6% YoY.

The chart above shows how Twitter’s monthly subscriber base has evolved over the last few quarters.

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Boosting advertiser ROI

To attract more advertisement spending on its social media site, Twitter needs to improve advertisers ROI (return on investment). It could achieve that goal by expanding its subscriber base and improving user engagement.

Video is a great way to improve user engagement. Twitter has tried video, including a partnership with the NFL, and the results have been impressive. For instance, the company reported that total ad engagement on its platform rose 151% in 4Q16, compared with a 91% increase in the prior quarter. That rise shows that, by increasing video content on its site, Twitter could draw more users to its social media platform and encourage them to spend more time on the service.

Can Twitter keep up with the video arms race?

While Twitter appears to be making the right moves with video, it can’t rely on user-generated video alone. Yet, if Twitter decides to go for premium video content from Hollywood producers, the company could easily be outspent by aggressive video buyers such as Facebook (FB), Alphabet’s (GOOGL) YouTube, Netflix (NFLX), and Amazon (AMZN).

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