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Twitter's User growth the only concern in an otherwise robust earnings

Part 3
Twitter's User growth the only concern in an otherwise robust earnings (Part 3 of 4)

How Twitter managed to grow its ad monetization rates

Twitter managing higher user engagement despite slow user base growth

In the prior article of the series, we discussed about Twitter’s (TWTR) Q1 2014 earnings, where we mentioned that although Twitter’s user base has not increased at a fast rate over the last few quarters, the company managed to increase its user engagement over the last one year. Twitter’s advertising revenue per 1,000 timeline views increased 96% year-over-year to $1.44, which was the main driver of its overall revenue growth.

Advertising CTR RatesEnlarge Graph

Higher ad click-through rates driving Twitter’s ad monetization

According to a report from Resolution Media, Twitter’s advertising click through rate increased by about 4 times in the last one year from an index of 4.5 in Q1 2013 to 16.5 in Q4 2013, whereas it just about doubled for Facebook (FB) during the same time period. According to the report, Twitter ads, generate clicks at a much higher rate as advertisers integrate them tightly with broad trends and conversations, serving up straightforward messaging and content directly into relevant conversation streams.

Moreover, Twitter ads appear within a less cluttered environment than Facebook ads, in the user’s Twitter timeline with few additional advertisers. The report also mentioned, “Throughout 2013, advertisers across all verticals sought to fine-tune Twitter ad strategies by integrating Twitter with other channels, relevant content, promotions, and news and announcements. These efforts collectively drove up the average CTR, reflecting a high level of engagement”.

Higher engagement causing multiplicative effect

In addition to Facebook,  Twitter competes with Google (GOOG), Yahoo (YHOO) and Microsoft (MSFT) in the online advertising market. Twitter credited the advertising revenue growth to higher user engagement, which is also an important parameter in the online advertising market.

During the conference call to announce earnings, Twitter’s management mentioned, “I’m really happy with engagement in Q1. It’s fantastic across a number of dimensions: One, the areas of focus for us in the last couple of quarters have been increasing the value of a timeline. And we saw, again, as we’ve mentioned, 26% increase in retweets and favorites just in this last quarter on top of really great growth in Q4. And then additionally, we saw that our net new users in the quarter in terms of timeline views per MAU are just as engaged as our existing users. Because I think of these 2 factors as not an either-or but rather a multiplicative effect and then we see that impact flow through to monetization, and we all see what the results were there, I think that the engagement rates we’re seeing are fantastic”.

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