Twitter Flirts with a New Business Model

Matt Bacon      February 10, 2021


Twitter is flirting with a new business model. Analysts have long lobbied for a subscription model at the company and may yet see one. When asked about a subscription model, CEO Jack Dorsey said on a Tuesday earnings call that “We will continue to build out these teams and to research and also to test on Twitter, and I’m sure you all will see those tests and have the opportunity to participate or observe them. But I wouldn’t expect you to see these be meaningful contributors until next year”. He added that “we love talking about subscriptions and the potential and the durability they can provide and predictability to our revenue streams, but we also maintain a big focus around our revenue products”.

The company was forced to explore a subscription model last year when ad revenue plunged amidst the COVID pandemic. Recurring revenue provided by subscription fees could be a powerful stabilizer for Twitter. Ad spend is fickle. But this brings up a host of other questions, namely around how the algorithm that feeds users content will change if people are forced to pay for Twitter.

Enter Birdwatch. Twitter unveiled a feature on Monday to test the validity of tweets made by users, which could bring changes to the types of content users see. Birdwatch is nothing more than a test at this stage. It’s currently set up to be something of a mix between Reddit and Wikipedia. Users will be allowed to write notes on tweets and/or parts of tweets that they believe are misleading and false. The notes are intended to provide context to the tweets but not strictly a fact check of the tweets. Other users will be able to see the notes and rate them, similar to an upvote in Reddit, with the highly rated notes making their way to the top of the pile.

If successful, this approach to content moderation could have broad implications across all social media platforms. But big questions about monetization will still remain. Will users still want to engage with Twitter in the same way if explosive and fallacious content is identified and (potentially) penalized? Will users find accurate statements less engaging? The Twitter team will need to test and find out.

Birdwatch is an entertaining thought experiment but Wall Street is focused on the numbers. Twitter stock has surged this week and is finally getting within an arm’s reach of its all time high set in 2014. Analysts love the possibility of a subscription model and are feverishly upgrading the stock. Q4 earnings handily beat expectations. Revenue was $1.29bn vs. $1.18bn estimated, monetizable users (i.e. those that are fed ads) grew 27% year on year, and earnings per share of $0.27 matched expectations.


*Note: Carmichael Hill maintains a position in Twitter (TWTR). All information presented in this article is meant for general education purposes only. We are not making a buy, sell, or hold recommendation for any company or organization mentioned in this article. Please consult your financial advisor for specific advice suited to your individual needs.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risks and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.

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