This is part 2 of my Twitter is Undervalued series. See here for part 1.

Last week, I talked about how Twitter is undervalued on a value per user basis because its user count extends beyond their 230 million registered active users. This week, we turn our attention to Twitter’s mobile strategy and why its unique mobile-first platform may mean Twitter is undervalued.

Born This Way

Unlike Facebook or LinkedIn, which adopted a mobile strategy long after inception, Twitter was born in it. Although, technically, Twitter emerged as a web app first, its early origins in alpha and beta had mobility in its DNA. Much of its product decisions in Twitter’s nascent days were influenced by the limitations of SMS and mobile. Everything from the original name (“twttr”) and the 140-character limit dealt with the limitations of SMS in a pre-iPhone mobile world. Mobile phone users who were accustomed to typing SMS without a QWERTY keyboard could tweet more conveniently than email.

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For both Facebook and LinkedIn, their initial mobile strategy emphasized HTML5, rather than the native app. The rationale for HTML5 was compelling: HTML5 made cross platform development more convenient and gave the social networks more control over their app (and away from Apple’s app store walled garden). Concurrently, more users were accessing these social networks through their iPads. For many tablet users, they preferred accessing their apps through the browser because many of the first iPad apps were mobile ports and had a poor user experiences. HTML5 made the browser experience more user-friendly.

However, HTML5 turned out to be a strategic mistake. Mobile users preferred the native app experience, as it was quicker and typically less buggy. Both Facebook and LinkedIn quickly moved back to native, but “lost” two years of development time in the process.

“Our biggest mistake was betting too much on HTML5.” – Mark Zuckerberg, September 2011

All these missteps translate into user growth and revenue. As a percentage of users and revenue, Twitter exceeds both Facebook and LinkedIn with 76% of monthly active users and 70% of revenues coming from mobile in the third quarter of this year.

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I looked through their SEC filings and saw some interesting takeaways. Twitter reports their mobile MAUs and revenues, but they do report if the user is solely a mobile user or a mobile+desktop user. Facebook can make that distinction, which is why they report two numbers. The 74% number is a blended number, whereas the 21% is the mobile-only number.

Revenue may be a better indicator of mobile’s impact for Facebook. For Q3 2013, mobile accounted for 49% of revenues. Of the three major public social networks, LinkedIn fared the worst. The third quarter saw only 38% of their monthly uniques coming from mobile. Since they had only begun monetizing from mobile, they did not report any mobile-specific revenue numbers. Interestingly, they did mention “mobile” 31 times in their latest analyst call.

Mo Money, Mobile

Benedict Evans recently published a great article on mobile apps and previously published a great slideshare on mobile eating the world.

Suffice to say, mobile should be the driver of growth for technology and media companies for years to come. How does that translate to revenue for Twitter and its social network counterparts? 

Unfortunately, in its public filings, Twitter did not break down its mobile revenue numbers historically. Facebook, on the other hand, has been reporting its mobile-only revenue since Q3 2012. Facebook reports directly (or indirectly) three metrics (I’ll use my own terms to describe them):

  • Mobile-Only Users (A): These users only access Facebook through a mobile device.
  • Mobile+Desktop Users (B): These users access Facebook through both a mobile device or through a desktop.
  • All Mobile Users (C = A+B): These users include all mobile users, some of whom access Facebook also through a desktop. 

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As you can see, since Q3 2012, the number of mobile-only users has outpaced overall mobile user growth, going from 21% in Q3 2012 to 29% a year later. This means that more and more Facebook users are accessing Facebook only through mobile.

How does this look from a revenue perspective? In addition to the user metrics discussed above, Facebook also reports a mobile-only revenue number. I did a little number crunching (special thanks to Mary Meeker for the inspiration):

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Okay that’s a lot of data. Let me get to the point.

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If you only look at mobile-only revenue, ARPU has been steadily going up for the past five quarters. From this, we can imply that the average mobile ad CPM will continue to increase to match its desktop web equivalent, which can conservatively be calculated at 3-4x. Twitter-owned MoPub publishes their CPM numbers for Android and iOS and since the beginning of the year, you can also see a steady increase (download it here).

Unlike LinkedIn and to some extent Facebook, Twitter stands alone in mobile, with the greatest portion of their revenue coming from your smartphone. If mobile CPMs continue to steadily increase to match their web counterparts, you can expect Twitter revenue to increase even if their percent of mobile revenue stays flat.

Money for Nothing

It is worth noting that Twitter only began monetizing in 2009 and are still continuing to innovate on their product offerings. Twitter introduced Twitter cards in the summer of 2012 and has since introduced more products in the Twitter card suite, including cards for apps, products and photos. In May this year, also Twitter recently introduced the Lead Generation Card.

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What Twitter is doing is incredibly exciting for marketers and investors. Typically, to increase ad revenue, you’d have to increase the frequency of your ads or add another ad unit to your portfolio. Twitter doesn’t have to do anything of this. Twitter cards are already in the user’s existing feed.

An enterprise lead is conservatively valued at 10x or more to its CPM equivalent because it provides valuable information such as the user’s name, contact information and intent to buy. With the Twitter card, this existing ad unit can potentially be worth 10x more than its current value and all Twitter has to do, is “turn it on” within the user’s existing feed.

Come Together

It’s no accident that Twitter introduced these new monetization platforms almost a year before their IPO. We are in the early days of Twitter’s monetization in mobile.

From a macro level, Twitter greatly benefits from mobile’s increasing dominance over desktop as well as mobile CPMs closing the gap between their desktop counterparts. From a company level, Twitter is not done innovating on its monetization products. Last month, Twitter introduced in-stream video and image previews, putting it in direct competition with photo-sharing apps. Why is this important for monetization? HubSpot recently did an A/B test and found when images were added to a tweet, they saw a 55% increase in leads.

Our last piece in the “Twitter is Undervalued” series will focus on Twitter’s huge international footprint. Obviously, Twitter’s success is something we care a lot about since ShareBloc is mapping the professional interest graph. If you want to check out our private beta, click here for a special invite.

See Part 1 “Twitter is Undervalued (for Investors and Marketers) here.

Note: I don’t own any Twitter stock but I do have friends who work at Twitter so if the stock keeps going up, I could get more free drinks from them.