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Twitter Inc (TWTR) Must Grow User Base and Ad Revenues to Remain Relevant

Twitter Inc (TWTR)

Twitter, Inc. had only managed to bring in around 3 million new users last quarter. With the exclusion of users who cannot be monetized, the company only managed to bring in 5 million new users in the past six months. This brings the total cash-bearing user base of the micro blogging platform to 307 million. That number is a billion shy of main rival Facebook’s recently reported 1.49 billion users. The online firm’s poor growth has hindered its ability to cash in on ad revenue and that’s a concern.

Twitter Inc (TWTR)

Twitter Needs More Ad Views

Twitter insists that it has far greater numbers of monetizable users coming to its platform. Adan Bain, the company’s newly appointed COO, said during the third quarter conference report that Twitter will soon make the effort of cashing in on these users. Bain told investors during the report that the fourth quarter will see the company start its “on-twitter logged-out monetization.”

The firm’s stock has dropped 13.5 percent during the last 3 months. Stock performance sits at negative 29.8 percent year to date. The last 52 weeks in total have seen a fall of negative 37.78 percent. Its stock has a year high of $53.49. This occurred in April while its year low was seen in August at $21.01.

Twitter has long been established but has only seen an 8 percent year over year growth this annum. The company’s growth is stagnating and has had investors concerned for years now. Its rival, Facebook, holds around 1.5 billion active users and still manages to pull in a better growth rate of 13 percent year over year.

So without enough user growth, Twitter has been made to build its ad revenue by other means. It has the capacity to grow its user base by at least three times its current growth rate, reports CFO Anthony Noto. However, it seems at though the company has been taking its time in implementing such strategies. Last quarter, Twitter upped its ad revenue by 13 percent. Of this percentage, 12 percent came from raised ad prices while only 1 percent was from actual user growth.

On the investment front, Twitter, Inc. has lost 10.96 percent in share price in the past week alone. It lost 19.17 percent in the last 4 weeks. The micro blogging site has under-performed S&P 500 index by 18.76 percent in the last 4 weeks.

Analysts expect Twitter to up its revenue by 42 percent next year. But increasing ad income strictly from raising ad prices and developing new features is an unsustainable strategy. The company needs actually user growth and it is obvious that this is not happening quickly enough. So, as a means to make up for this, Twitter has to increase the amount of adverts its current user base sees.

More Ads from Twitter

How does it do this? By placing ads on its homepage, user profiles and search results pages. Twitter generates most of its ad income from promoted features. It promotes popular tweets, accounts and trends. Its new Moments tool gives the firm a chance to showcase its best aspects to visitors who are logged out.

“What we’ve learned so far doesn’t allow us to deviate from what we said previously in terms of what we think the opportunity exists in terms of logged-out users,” says Bain.

Moments gives the platform a chance to advertise whatever the moment in being viewed is about. This means Twitter can sell ads against Moments the same way that TV networks sell their ad space.

The strategy seems optimistic but holds a very high up potential. The company could very well double its ad revenue just by doubling its ad placements. However, investors should not expect this to happen overnight. The strategy is only in its initial stages and should yield results appropriate to its use.

On Monday, Twitter stock stood at $25,18 pre-market.

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