Twitter-Amazon to Offer Direct Shopping - Analyst Blog

Twitter Inc. TWTR and Amazon.com Inc. AMZN recently entered into a partnership that will allow the former's users to shop directly from the latter's e-Commerce portal. The service will be available to users who will connect the two (Twitter and Amazon.com) accounts.

By replying to the product links appearing with the hashtag #AmazonCart, U.S. customers can add items to their Amazon shopping cart. They can complete the transaction later on by visiting Amazon.com.

The service is expected to promote Twitter's viability as an e-Commerce platform. Per Bloomberg, although Twitter will not earn any revenues from the deal (as cut-off percentage from individual sales), Amazon is planning to increase its ad investment on the platform, which is a significant positive.

Twitter has been searching for ways to monetize its platform, including direct shopping option on the portal. This business model, already practised by the likes of SINA SINA Weibo and Alibaba in China, will help Twitter to better monetize its 255 million strong user base.

We believe that the success of the new service will help Twitter to attract advertisers and retailers in the near future. Advertising revenues contribute more than 90.0% to Twitter's top line.

Twitter launched a number of new products for advertisers during the recently concluded first quarter. The company allowed marketers to create tailored audiences from email lists and customer relationship databases. Twitter also enabled advertisers to target TV conversations for Spanish-language television and connect with users through Promoted Accounts in search.

As a result, advertising revenues surged 125.0% from the year-ago quarter. Advertising revenue per thousand timeline views jumped 96.0% year over year to reach $1.44 in the reported quarter. Mobile advertising revenues were more than 80.0% of total advertising revenue in the quarter, up from 60.0% in the year-ago quarter.

As spending on online advertising is expected to increase manifolds versus traditional media, we believe that Twitter has massive growth opportunity, due to its strong mobile products.

Twitter's ability to attract more advertising revenues, despite facing significant competition from Facebook FB, Yahoo! Inc. YHOO and market leader Google (GOOGL) will be something to watch out for in the near term. In this regard, the partnership with Amazon will improve Twitter's competitive position in the near term.

However, higher operating costs and continuing investments on product development will hurt profitability.

Currently, Twitter has a Zacks Rank #3 (Hold).