Twitter’s revenue continues to grow at a fast rate

Earlier in this series, we discussed how Twitter’s (TWTR) monthly active user (or MAU) growth disappointed. As a result, investors punished its stock. However, despite the slow user growth, Twitter continue to maintain an impressive rate of revenue growth. Twitter’s revenue in 3Q14 was $361 million, up 114% from the corresponding quarter a year ago. This revenue was better than Twitter’s own previous guidance of $340 million. The revenues from the U.S. market grew by 88%, while they grew at an even more impressive rate of 164% in international markets.

Twitter credited the strong revenue growth to the increase in ad revenue per thousand timeline views metric. This is the main parameter that Twitter uses to measure user engagement. As the chart below shows, this metric reached $1.77 in 3Q14—a year-over-year increase of 83% and a sequential increase of 11%. This metric in the U.S. was much more valuable and reached $4.28, up 66%. In international markets, this metric grew at a year-over-year rate of 132% to reach $0.84.

Why Twitter managed to produce robust revenue growth in 3Q14

Number of reasons why Twitter is able increase its user engagement levels

Some of the reasons management mentioned during Twitter’s earnings conference call are:

  1. Expansion to international markets: In the third quarter, Twitter expanded its sales efforts to 12 new markets in Europe.
  2. Rolling out new ad products: These include products such as mobile app downloads and promoted video ads. Mobile app install ads are the ads that appear below an app that the user is currently engaged with. These ads encourage users to download new apps directly from Apple’s (AAPL) App Store or Google (GOOG)(GOOG) Play.
  3. Improved ad targeting: Social networks such as Facebook (FB) and Twitter have started to provide relevant ads to users through user data. Market Realist covered this in an article titled How Facebook and other social networks monetize users’ data.
  4. Better return on investment (or ROI) to advertisers: Twitter mentioned that it’s focusing on providing better ROI to its advertisers. In that regard, Twitter changed its advertising payment model for advertisers—especially small businesses, which have limited budgets—to increase their ad performance.

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