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.
Smaller scale
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.
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"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.
Enter MoPub
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.
