- Twitter’s user base is growing at a snail’s pace compared to Facebook’s.
- What the company needs now is more user engagement, and advertiser engagement.
- Will live streaming video be the answer to their problems?
After the social media startup craze during the last decade, three big platforms emerged - Facebook (NSDQ:FB), Twitter (NYSE:TWTR) and LinkedIn (NYSE:LNKD). Linkedin is being acquired by Microsoft (NSDQ:MSFT), Twitter is struggling and Facebook is a roaring success. The gap between Twitter and Facebook has now widened so much that even comparing the two social media platforms seems like a pointless exercise. Let's take a closer look at some of Twitter’s recent initiatives to see if it can survive this decade, or if it needs a suitor to acquire it in order to keep the platform moving forward.
User Base Growth and Average Revenue per User
In the social media landscape, if you don't grow, then you are on the wane. In a way, social platforms have the advantage of the network effect that can take them to great heights. But if the numbers don't keep expanding then the same network effect works in the opposite way, slowly reducing their relevance, utility and attractiveness for advertisers.
Take a look at the chart below and you’ll see how the two companies fared during a similar time-frame, albeit during different years. While Facebook tripled its user base from 197 million in 2009 to 608 million in 2010, Twitter only grew its user base by 50% during a similar two years - from 204 million in 2013 to 288 million in 2014.
This creates problems on two fronts. From an advertiser’s perspective, with such a growth in its userbase Facebook has made itself a “must-have” platform, while Twitter becomes the second choice.
The second problem: the direct result of that positioning vs the competition is a lower average revenue per user (ARPU). That’s logical because when there’s a preferred option for advertisers, the second player will be forced to offer discounts and better deals to sign up potential clients.
To make it even easier to understand, let's look at the userbase vs revenues collected. At the end of the second quarter, Twitter had 313 million users and made $602 million in quarterly revenues, while Facebook had 1.712 billion users and made $6.44 billion in quarterly revenues.
So, while Twitter only takes home $2 per user/quarter, Facebook makes $3.76 - nearly double that of Twitter’s ARPU.
Facebook does have multiple offerings such as Facebook and Instagram to provide a booster shot to improve its sales numbers, but Twitter still doesn’t have much support on that front in the absence of monetization on Periscope and Vine.
But there’s one recent initiative that may yet save the company.
Twitter Live Streaming Video for Broadcasters
Though a little late to the game, Twitter has been on a video-deal-signing spree, and live broadcast is one area that they are looking into.
“According to reporting from multiple news outlets, Twitter and Bloomberg recently reached an agreement that will grant Twitter the rights to stream three Bloomberg programs over its social network. The shows in question are tech-focused Bloomberg West, business recap What'd You Miss?, and political talk show With All Due Respect.” - Motley Fool
This might turn out to be a great angle, and one that could work well for Twitter. As we all know, Twitter generates a lot of chatter around specific events, and if users can watch live programming or broadcasting, and at the same time keep talking to people who are talking about it, it would be a viable way to increase engagement.
But Facebook is not going to sit and watch these things unfold. They are already in that space, trying to find every way to increase their own engagement numbers using video consumption. In a way, we can say that Facebook stepped up its efforts here and Twitter followed. Honestly speaking, it should have been the other way around - Twitter should have led the way. That would have given investors a lot more confidence that the current management team can really turn things around.
That said, Twitter still has a loyal user base that adores the platform, but they need to step up their offerings. If they can win on the engagement, then it will take the company a long way. Video is definitely one area where Twitter can see some real gains.
During the Q2 earnings call it highlighted the video angle quite a bit. CEO Jack Dorsey spoke about people watching live events and discussing them at the same time. Events such as the political conventions and live-streaming sports are the main focus for the current quarter, and Twitter has made elaborate extensive plans for covering the Olympics as well.
Here’s what Twitter’s Chief Marketing Officer Leslie Berland said in a recent press release:
“Twitter, Vine and Periscope will offer fans inside access, commentary, highlights, and conversation throughout the Games and as the action unfolds."
To top it off, Twitter has also acquired some premium advertisers, including “Anheuser-Busch, Verizon, Sony and Nestlé.”
The video initiative is indeed exciting, but Twitter has a long way to go before we can recommend a BUY for the stock. For now, just look at it as a potential upside in an otherwise depressing situation.