One thing we learned about Twitter this week: its user base is very international and growing more so by the day.
That's not an inherent problem; it may indeed be an opportunity as most global ad growth is happening outside the U.S.
But this is a problem: Twitter appears to be reaching full penetration in the U.S. The company says it had 49.2 million U.S. users who signed in at least once a month during the second quarter of 2013, up from roughly 48 million in the first quarter. Monthly users had jumped by 3 million over the previous three-month period, and 5 million before that, so growth appears to be slackening.
It begs the question: How many new Twitter users remain in the U.S.?
While Twitter has grown its ad revenue to $500 million in just a few years, scaling it internationally will be a much harder slog. For now, Twitter generates the 75% of its revenue from U.S. where just 23% of its users live, according to numbers provided to the Securities and Exchange Commission this week. For Twitter to scale, it needs to turn that ratio on its head.
Internationally, Twitter had 169.1 million monthly active users on average in April, May and June, up from 156 million in the previous quarter. The filing noted that markets like Argentina, France, Japan, Russia, Saudi Arabia and South Africa are now seeing higher rates of user growth than the U.S.
Forget the vaunted "amplify" strategy of piggybacking on marketer TV budgets – that's inherently a U.S. play. As it looks to sell against the high penetration it has in some countries, Twitter will rub up against the fact that the cost of doing business will still be high, but the potential commitments it can secure are a lot lower.
"It is the same sales process [as in the U.S.] but at a tenth or less of the scale," said Pivotal Research analyst Brian Wieser. "So your costs are the same, but the revenue you'll generate is much, much smaller."
Twitter's international revenue number doesn't paint the full picture, since Twitter campaigns purchased in the U.S. to reach international users are counted as contributors to domestic revenue. Twitter noted in its filing that it intends to address that imbalance by investing in operations abroad, and it's recently focused international spending on building sales and marketing functions in countries like Australia, Brazil, Canada, Japan and the U.K.
It also intends to bring its automated self-serve ad tool to some international markets. Advertisers abroad currently have to buy directly from Twitter representatives or through a sales partner like IMS, which sells Twitter ads in Latin American markets other than Brazil.
While those measures should help Twitter grow its international revenue, the fact remains that even a promising market like Brazil where the company is deeply invested is simply a lot less lucrative than the U.S. And Twitter currently needs user growth -- which is less likely come from the U.S. going forward -- to accelerate its ad revenue, since it's been emphatic that it won't stuff more ads in users' streams.
In the context of slowing user growth at home and lower profits to be made off its faster-growing user base abroad, Twitter's decision to buy mobile ad exchange MoPub for roughly $300 million in stock looks like a critical move. If Twitter can't quickly accelerate its revenue through its own users anymore, it needs a way to show ads to users in other environments, which MoPub can furnish on mobile apps.
"[Twitter does] need to find other ways to see its users more frequently, and also to take advantage of the great social network data that they do have," said Rob Leathern, CEO of the social-ads company Optimal.
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