Twitter and Walmart show signs of subscriber envy

Subscription makes more sense for Walmart, at least in garnering more revenue. But becoming more like Amazon could bring a downside

  
3D-printed Facebook and Twitter logos are seen in this picture illustration made in Zenica, Bosnia and Herzegovina on January 26, 2016. REUTERS/Dado Ruvic/Files

3D-printed Facebook and Twitter logos are seen in this picture illustration made in Zenica, Bosnia and Herzegovina on January 26, 2016. REUTERS/Dado Ruvic/Files

REUTERS/Dado Ruvic/Files

(The authors a Reuters Breakingviews columnists The opinions expressed are their own.)

NEW YORK/SAN FRANCISCO  - Some companies, and their investors, are going goggle-eyed over subscriptions. The mere hint that Twitter and Walmart are considering paid services sent their market values soaring in recent days. True, some companies that hit up customers for monthly fees are performing well. But it’s not only customers who could end up paying.

Jack Dorsey’s social network posted a job ad on its careers site mentioning a subscription platform that would collaborate with its payments and Twitter.com teams. It was later edited, leaving the details a mystery. But the $26 billion company’s stock was up by more than 11% on Wednesday. As for Walmart, the $360 billion retailer is cooking up plans for an Amazon.com Prime-like subscription service, according to Vox’s tech journal Recode. Walmart added $23 billion to its market capitalization on Tuesday – triple the value of rival Albertsons.

A steady stream of revenue would help Twitter. It has been caught up in a boycott by some advertisers concerned about hateful content, including consumer goods giant Unilever, which plans to halt marketing on both Twitter and Facebook until the end of the year. While the Covid-19 pandemic has spurred user growth for social media companies, Twitter only managed a 3% annual revenue increase in the first quarter. At Walmart, revenue growth was an impressive 8.6% in the latest quarter, but adding bells and whistles like free one-day delivery could boost that further.

It's not hard to see why the companies might want to jump on this bandwagon. Shares of the New York Times, Spotify Technology and Netflix, which all have subscription models, have well outpaced the S&P 500 Index in the last six months. They have outperformed Walmart and Twitter too. But what works in one place might not in another. For Dorsey, subscription doesn’t do much about the toxic content that has caused advertisers to protest in the first place. And it will be hard to make users pay for content that’s valued for being unfiltered and immediate, unlike traditional journalism.

Subscription makes more sense for Walmart, at least in garnering more revenue. But becoming more like Amazon could bring a downside. Walmart’s operating income margin for the last quarter was 5%, while the equivalent for Amazon’s North American business was 2.8%, thanks partly to hefty shipping expenses. Subscription comes with a cost, and not just for the subscribers themselves.

CONTEXT NEWS

- Twitter’s stock rose more than 11% on July 8 after a company job posting said the social network plans to build a subscription platform. The company said the new service, code named Gryphon, would collaborate with its payments and Twitter.com teams. The post was later edited to remove those references.

- Walmart shares increased 7% on July 7 after Vox’s Recode reported that it will launch a subscription service later in the month similar to Amazon.com Prime, citing several unnamed sources. The service, called Walmart+, will cost $98 per year and include perks like same-day delivery of groceries.

(The authors a Reuters Breakingviews columnists The opinions expressed are their own.)

(Editing by John Foley and Amanda Gomez) ((jennifer.saba@thomsonreuters.com; gina.chon@thomsonreuters.com; Reuters Messaging: jennifer.saba.thomsonreuters.com@reuters.net; gina.chon.thomsonreuters.com@reuters.net))

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