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Twitter (TWTR) Takes Bold Steps to Make Ads More Transparent

Twitter Inc. TWTR recently announced that it will provide users with more detailed information regarding advertisements made on the platform, more specifically the political and issue-based ones. Reportedly, the update will initially be rolled out in the United States and subsequently in the other countries.

In a

, the company said that in order to provide more “visibility” to the ads a Transparency Center will be launched in the coming weeks. Users will not only be able to view all the ads running on the platform but also find out how long they have been there and make comments.

Moreover, for the “electioneering ads”, advertisers will be required to provide detailed information regarding the total advertising spend on the campaign, the source of funding, data on previous ad spends and the targeted audience.

Further, political advertisers will also be required to mark themselves with a “visual political ad indicator”. Reportedly, similar indicators were introduced by Twitter for distinguishing political ads in 2011. However, the company discontinued with it later on.

Twitter also added that it is introducing “stronger penalties for advertisers who violate policies.”

However, declining advertising revenues are a concern for Twitter as it faces lack of revenue diversification. Notably, shares of Twitter have gained 5.9% year-to-date, significantly underperforming the industry’s 25.4% rally.

Regulatory Threat

Twitter along with Facebook FB and Alphabet’s GOOGL Google have been under tremendous pressure to contain dissemination of extremist ideas on their platforms. Since the 2016 U.S. Presidential elections, these companies have faced severe criticism for spreading fake news that allegedly influenced election results.

Twitter revealed that it had found over 200 accounts related to Russian factors/bot network.

In September, Twitter took strong steps to fight terrorism by suspending accounts linked with terrorism on its platform. From August 2015 to June 30, 2017, Twitter suspended 935,897 accounts in a bid to curb the spread of extremism propaganda, which plagued its service.

Last month, Facebook revealed that it had identified Russian accounts spending nearly $100,000 in ads (over 3K), which coincided with the U.S. elections (from June 2015 to May 2017). This caused a massive uproar and now the government machinery wants to impose stricter regulation on these social media companies.

Moreover, pressure from governments of various countries including France, Germany and Britain to curb the spread of fake ads/news and extremist activities on their platforms are mounting.

Therefore, rolling out this change in advertising policy will help Twitter battle such extensive PR damage in our view.

We believe that by bringing such transparency in the platform, the company will be able to lure more users and thereby attract advertising dollars.

Zacks Rank and Key Pick

Twitter carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Micron Technology MU), sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Micron is currently projected to be 10%.

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