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Why Investors Are Watching Twitter’s Audience

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Monthly active users

Investors are on high alert as Twitter’s (TWTR) 3Q17 release approaches. Last quarter, Twitter failed to grow its audience base meaningfully, and going by how the market reacted to the report, investors were not impressed.

Twitter went into 2Q17 with 328 million MAUs (monthly active users), and it came out of the quarter with the same number. In contrast, Facebook (FB) added 70 million MAUs. What transpired in Twitter’s 2Q17 was a sharp reversal from 1Q17, when the company’s MAUs rose by 9.0 million and beat estimates.

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Online advertising is a game of large numbers

The above chart shows how Twitter’s audience base has evolved over the last few quarters. As Twitter depends on advertising for most of its revenue, its audience size is a metric that investors watch closely. A larger active audience base is preferred in the online advertising industry, as it attracts more advertisers and encourages existing advertisers to spend more money on pitching to potential customers.

Part of the reason Facebook and Alphabet’s (GOOGL) Google have been more successful in the online advertising business is their large audience sizes. People spend billions of hours watching YouTube videos, and Facebook crossed 2.0 billion MAUs on its flagship social media platform in 2Q17.

Twitter is under pressure

Yelp (YELP) and Snap (SNAP) are also vying for online advertising dollars, pressuring Twitter to grow its audience base to bolster its competition.

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