$137.8B U.S. ad spend for top 200 advertisers
Twitter has been going through a lot of changes lately. The company has a new-old CEO, a new product to lure more casual users and new ad formats to sell to brands. What hasn't changed is its quarterly earnings story.
Continuing a trend, Twitter's business growth continues to outpace its user growth. The company has once again grown both its total revenue and ad revenue by more than half over the past year, but the number of people it can show those ads to isn't growing nearly as much. During the company's earnings call on Tuesday afternoon, as a result, Twitter execs laid out their latest plans to attract more people to its service and not lose advertisers who want more for their money than retweets and favorites.
Twitter's third-quarter revenue totaled $569.2 million, a 58% increase year-over-year to beat analysts' expectations by $10 million. And the company's advertising revenue grew by 60% year-over-year to hit $513 million, with mobile ads accounting for 86% of that sum.
Meanwhile Twitter isn't adding as many users as it was even three months ago. The company counted 320 million people that used its service each month on average, including 13 million people who use Twitter via text messaging to follow specific Twitter users without registering their own Twitter accounts. That's 11% more monthly active users than a year ago, but the rate of growth decelerated from the 12% year-over-year growth that Twitter reported in the second quarter of 2015.
To grow its user base and in turn its business, Twitter is rolling out an ad campaign to promote its Moments live-event section. The campaign's first TV ads will premiere Tuesday night during the first game of the World Series, and it also includes digital video ads and search ads. However Twitter doesn't have a dedicated CMO in place to oversee that campaign, despite saying in late July that it was on the hunt for one. CFO Anthony Noto has been doing double duty in the meantime as the company's marketing boss.
Twitter is also looking for ways to make more money from people who aren't really Twitter users. For starters, in the fourth quarter it plans to start showing ads to people who visit Twitter but aren't logged in.
The company already makes money from showing ads to people who are or aren't logged in to Twitter when they're outside of Twitter, but it's looking to grow that revenue as well. While $447 million of Twitter's ad revenue comes from ads on its own site and apps, a 42% increase year-over-year, the company is trying to grow its revenue from the ads it sells on others' sites and apps through services like TellApart, the automated ad-buying tool it acquired in April, and the Twitter Audience Platform mobile ad network. That off-Twitter ad revenue hit $66 million in the third quarter, up roughly 931% year-over-year.
Focus on advertisers
As important as it is to grow the number of people it can sell ads against, it's also important that Twitter keep giving advertisers reasons to buy those ads.
While people are interacting more with ads on Twitter, Twitter is making less money for each of those interactions. In the third quarter, the number of times people interacted with a Twitter ad -- typically by clicking on it, retweeting it or favoriting it -- increased by 165% year-over-year; the average amount of money Twitter makes for each of those interactions dropped by 39% year-over-year. That reverses a three-quarter trend during which Twitter was able to increase both the number of times people interacted with an ad and the average amount brands pay for those interactions.
Historically Twitter has sold ads based on its ability to get people to interact with its ads. That cost-per-engagement model offers brands social currency in exchange for their spend, but Twitter rivals such as Facebook are looking to offer marketers something closer to actual currency. For example, Facebook decided earlier this year to stop selling ads based on people liking or sharing them in order to orient its ad sales around actual business objectives like driving product sales.
On the surface, Twitter's ad engagement and pricing stats would suggest that brands are finding less value in people's interactions with their ads on the platform. In an echo of Google blaming its ad price declines on YouTube's video ads, though, Twitter blamed its price decline on its video ads.
Video on Twitter
The increase in ad interactions stemmed from Twitter's adoption of autoplay video ads toward the end of the second quarter as well as its off-Twitter ad business, according to Mr. Noto. The decline in average ad prices was "due entirely to the shift to autoplay video as the cost per view of autoplay video is dramatically lower than click to play," he said.
Mr. Noto and Twitter COO Adam Bain also made the case that these cheaper video ads were more valuable to advertisers.
"After introducing autoplay video, marketers saw an 84% decrease in the cost-per-video-views on Twitter. Additionally our marketers saw a 7x increase in the amount of video completions," Mr. Bain said.
However, unless Twitter plans to go whole-hog on autoplay video ads, it needs to find ways to give marketers more bang for their bucks than video views. And that's the plan. After announcing a deal with Google in April to use the search giant's DoubleClick ad-tech product to measure ads' performance, including their impact on actual business outcomes, "Twitter expects to officially start our DoubleClick pilot at the end of Q4 to make measurement and attribution available for a small number of our joint customers," Mr. Bain said.
That should patch two problems cited by Mr. Bain that Twitter's ad business has suffered from as advertisers increasingly scrutinize the return on their ad investments. First, most of those systems can't accurately measure mobile app activity because they were built for desktop ads. That's a problem considering that 86% of Twitter's ad revenue stems from mobile and 80% of its monthly audience uses the service on their smartphones and tablets. Second, those measurement systems have a hard time tracing how people interacting with a promoted tweet can indirectly lead to conversions like product sales or app installs.
"Marketers know that there's a link and they want to see it," Mr. Bain said. "So our partnership with DoubleClick precisely addresses these two problems."
Finally, Twitter plans to do a better job of making sure it's showing the right ads to the right people. In the fourth quarter it will start testing TellApart's technology to target people on Twitter with ads followig up on the ads they saw outside of Twitter. Mr. Bain described this "dynamic ads retargeting pilot" as "the first instance of using the TellApart technology back on Twitter."