Advertisers continue to fly from Twitter

Contact: Scott Denne

Earnings calls this week from Google, Facebook and Twitter highlight how far the latter has fallen behind those two giants. While advertisers flocked to Google and Facebook, they fled from Twitter. Although its results were dismal, the onetime contender for Facebook’s social media crown seems to have correctly identified its differentiator and is building – slowly – a strategy to capitalize on that.

Twitter’s top line dropped 5% to $574m in the second quarter, a decline that would have been more dramatic without a rise in its data-licensing business. An 8% slide in its revenue from advertisers mixed with a 12% jump in daily active users points to the shrinking price of Twitter’s ad impressions. Facebook, by comparison, experienced a 25% boost in its revenue per user on its way to a 45% increase in revenue in Q2.

In an attempt to get sales growing once again, Twitter’s management has focused on the appetite of its audience for real-time information and embraced video partnerships in verticals with a similar focus – music, sports and news. Yet its drooping ad rates attest to the slow burn of such efforts: declining ad rates amid an environment of rising prices for digital video inventory.

To raise its ad sales, Twitter could pursue a media rollup in verticals that match its strengths. The $4bn it has in the bank, along with a stock that still trades near 5x TTM revenue, gives it the flexibility to pursue a series of modest-sized targets as well as larger digital media properties. For example, music video site VEVO would complement its existing streaming partnership with Live Nation and get Twitter one of the most trafficked video sites on the internet.

Twitter’s platform will never have the scale and reach of Facebook, whose monthly audience is six times larger and increasing at a higher rate. But it can expand its reach into the audiences it has by leveraging its real-time strength and extending them off its platform. As a social media company, Twitter’s a runt. But as a digital media company its open, conversational platform gives it a way to engage audiences in ways that aren’t available to other digital media firms.

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