Twitter, Facebook, and the Mobile Advertising War

Twitter's IPO filing arrives on the eve of a battle over digital advertising dollars. Twitter is pitted against Facebook (NASDAQ: FB  ) in a war to attract buyers for mobile advertising products. Here's what you need to know about Twitter's S-1 and how it positions Twitter relative to Facebook.

#How the Twitter IPO compares to the Facebook IPO
Twitter plans to raise $1 billion with its IPO
. Facebook's IPO was initially going to raise $5 billion, and that rose to $16 billion by the time trading began 

Twitter has 218 million monthly active users and over 100 million daily. Facebook's S-1 cited 845 million monthly active users and 483 million daily active users.

Twitter's revenue last year was $317 million, and though that's on track to more than double this year, Facebook reported $3.7 billion in revenue in the year preceding its IPO, and was turning a profit of $1 billion annually. Twitter is not profitable, and lost $80 million last year and $69 million in the first half of this year.

Concerned as potential investors should be about Twitter's growth and profitability, they should also realize that it's the company's ability to innovate mobile advertising products that will determine its success in winning advertising dollars and achieving profitability.

#How Twitter is facing the mobile revolution and its problem with scale
Even before Facebook went public, the number of social media users accessing services via mobile devices has been increasing dramatically. At the time of Facebook's IPO filing, it faced criticism over its lack of significant mobile revenue

A full 65% of Twitter's advertising revenue comes from mobile advertising, and that seems like a lot compared to the 41% that Facebook earned through mobile advertising in the second quarter of 2013. But Facebook earned $4.3 billion in advertising revenue last year, and Twitter earned $269 million.Will Twitter be able to leverage its mobile advantage to overcome its big problem with scale?

The sheer mass of Facebook's revenue and user base, even at the time of its IPO, far exceeds Twitter's. And Twitter generates about $0.55 per monthly active user versus Facebook's $3.67 per user in the US and Canada and $1.41 per user in other countries worldwide .

Twitter's $0.55 per monthly active user breaks down like this: 75% of Twitter users access the platform via a mobile device, but Twitter earns more money per ad view on desktop applications than on mobile applications. Additionally, 77% of Twitter users are outside the U.S., and these international users account for only 25% of advertising revenue. Less-advanced mobile technology abroad impedes access to Twitter's latest advertising innovations and hurts advertising revenue.

To fix this gap in mobile advertising revenue, Twitter will need to create new, mobile-tailored advertising products, or make the current products more visible – and profitable – on mobile applications.

#The war for advertising dollars is more than a popularity contest
A big concern for Twitter is whether the platform can become as ubiquitous as Facebook. About a fifth of U.S. Internet users uses Twitter at least once a month, while over half of U.S. Internet users uses Facebook every day . It's relevant to ask if Twitter can manage to go mainstream. Clearly, it hasn't yet.

That hasn't stopped advertisers like CBS and the NFL from making large advertising deals with Twitter. Promoted Tweets will drive viewers to TV programming and bring them back to Twitter to discuss. Facebook is working to sell advertising to TV networks as well, and differences will emerge in the type of ads that the two social networks offer.

Twitter isn't a sure bet as an investment, and the biggest concern is that its revenue model is so significantly hurt by its difficulty becoming a mainstream choice among U.S. Internet users. I'm not waiting for Twitter to catch up to Facebook, but I am going to watch for Twitter to innovate new mobile advertising products and win more big advertising contracts. Even Twitter admits that it has a lot to prove, and I'd be cautious about investing without knowing that Twitter has a concrete plan to stake its claim on digital advertising capital.

Compelling ideas from Motley Fool
This incredible tech stock is growing twice as fast as Google and Facebook, and more than three times as fast as Amazon.com and Apple. Watch our jaw-dropping investor alert video today to find out why The Motley Fool's chief technology officer is putting $117,238 of his own money on the table, and why he's so confident this will be a huge winner in 2013 and beyond. Just click here to watch!






Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2669808, ~/Articles/ArticleHandler.aspx, 11/22/2014 5:42:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement