Twitter has been able to grow its ad revenue despite its struggles to grow its user base -- at least for now. To make sure its decelerating user growth doesn't deflate its ad-revenue growth, the company is planning a big marketing push later this year.
Twitter plans to roll out its first integrated marketing campaign by the end of 2015 and is in the process of hiring a CMO, the company's CFO and de facto marketing head Anthony Noto said during the company's earnings call on Tuesday. Mr. Noto said the campaign will promote Twitter's upcoming Project Lightning, a new feature designed to curate tweets around live events that's scheduled to debut in the fall.
The emphasis on marketing underscores one of the bigger issues facing Twitter's business: It's not attracting many new people to sign up for the social network. In the second quarter, Twitter only grew its number of monthly active users by 12% year-over-year to 302 million people. That figure doesn't include the 12 million people in a given month who use Twitter via text messaging to follow specific Twitter users without registering their own Twitter accounts, which limits Twitter's ability to target ads to that audience segment.
"Our Q2 results show good progress in monetization, but we are not satisfied with our growth in audience," Twitter's interim CEO Jack Dorsey said in the statement. During the company's earnings call on Tuesday, he declined to offer any update on where Twitter's search for a new permanent CEO stands.
In the second quarter, Twitter's revenue rose by 61% year-over-year to $502.4 million. That exceeded analysts' average projection for $481.9 million, according to data compiled by Bloomberg. And the company's ad revenue, in particular, increased by 63% year-over-year to $452 million, with mobile ads accounting for 88% of that money.
Mr. Noto attributed the ad revenue increase to strong demand and a growth in Twitter's advertising base. But he later said that Twitter has more ad slots to sell than advertisers willing to buy them. The company reported a 53% increase in the number of times people engaged with an ad, and a 6% increase in the average amount advertisers pay per engagement, Mr. Noto said during the earnings call.
To date, Twitter's slowing user growth doesn't seem to have hurt its ad revenue much. But that could change. If the audience deceleration continues, Mr. Noto said, Twitter could run into times where daily demand from advertisers could increase "toward one particular type of ad category," which could be a problem if Twitter doesn't have enough available inventory to fill that specific demand.
The negative implications of Twitter's slowing user growth for its ad business seems to be why Mssrs. Dorsey and Noto spent much of the company's earnings call discussing the need to attract new users and the importance of marketing to help fill that need.
"We're developing a marketing strategy and plan to address" the monthly active user stagnation, Mr. Noto said. He added that even though 95% of people in Twitter's most important global markets are aware of Twitter, less than 30% of them actually use Twitter. "This low level of penetration implies that we have only reached early adopters and technology enthusiasts, and we have not yet reached the next cohort of users known as the mass market." The company is hoping that marketing and a marketing boss will help get it there.
--With contributions from Bloomberg News