Here's How Twitter Is Targeting Future Growth

Learn what Twitter's latest moves reveal about its outlook on growth.

Apr 14, 2014 at 3:00PM

Expansion in the social network market seems like a tough challenge for Twitter (NYSE:TWTR). The company has experienced a stock price drop plus a slowdown in user growth in the past months. So, it's currently focusing on increasing its user base and retention. Yet the heavy competition from Facebook (NASDAQ:FB)and Google (NASDAQ:GOOG) is putting pressure on its plans.

In this competitive context, it recently bought Cover, an Android app designed to show notifications in the locked screen of mobile devices. Cover learns about which apps are used at different locations and times and then uses that information to relevantly offer app shortcuts. In addition, it has been rumored that Twitter is implementing 15 new types of ads in its feed. As it seems, it is aiming strongly at increasing user growth, retention, and monetization.

A challenging growth scenario
A report from Twopcharts, an analytics website, has revealed that Twitter accounts created in recent years are less active than those of early adopters. Moreover, only 13% of its 955 million existing accounts have tweeted in the last month. Overall, the data shows that Twitter has a problem with user retention and engagement.

The social network can be hard to understand by many of its new users. Aware of this, Twitter is working to be more user-friendly and cutting its learning curve. However, this restructuring risks upsetting its longtime fans, who use Twitter because of its unique features. Now, it seems like the company is looking forward to paying for acquisitions and implementing new monetization strategies.

Smart solutions for user growth
The recent acquisition of Cover offers a variety of possibilities for expansion. The app could be used as a way to create a product similar to Facebook Home, in which the social network gives access to posts and notifications through the locked screen of the smartphone. However, given Cover's strengths on learning about a customer's habits, the acquisition could imply a very different thing.

Cover can provide Twitter with useful information about when and where smartphone users enter the social network. With the data, Twitter could improve advertisements by offering them at the most relevant time and place, maximizing its monetization potential. It can also filter which notifications to prioritize for exposure in the locked screen, making it much friendlier with users. In that way, the move could lead to more user retention, since users can be more exposed to Twitter at the most convenient times and so become engaged to the social network. Moreover, it is possible that these people will invite others to follow them on Twitter, which contributes to even more user growth.

Introducing app-install ads
One of the 15 new types of ads in Twitter's feed is the app-install advertisement. This type of ad has been quite successful for Facebook, and it seems like Twitter is working to make its version as efficient as possible. If the ads are launched adequately and are relevant according to the user's demographics, the company can significantly increase its revenue. Consequently, a better top line can move it closer toward justifying its market value.

Behind major competitors
Twitter is still behind tech giant Google. Its Google+ has grown considerably in the past few years. In its Q4 2013 results, it had 1.15 billion registered users and 359 million monthly active users. The numbers show that Google+ is not doing very well with user engagement. Still, Google aims to make its social network useful through its other services like Gmail or Youtube. So, some users can find it more comfortable to stick to a Google-only platform.

A bigger competitor is Facebook, which enjoys success in both top and bottom lines consistently. This social network is currently the largest, with 1.2 billion users. This year, it has invested aggressively in new expansion projects. After its $19 billion acquisition of Whatsapp, it has gained access to the application's 450 million users. Facebook also bought Oculus VR a few weeks ago for $2 billion, entering a new world of hardware and opening up possibilities to offer a more differentiated service in the future. 

Twitter is making moves that could lighten its growth issues. Its acquisition of Cover opens up several possibilities for business expansion. The application offers data that can be useful to improve targeting in advertisements and exposing users to the social network at the right time and place. As a result, it can increase its monetization and user retention. Also, the rumored app install ads can lead Twitter to improve its top line. So far, the company falls behind Google+ and Facebook, which boast impressive growth and strong financials. That being said, Twitter's move can push it ahead in the market and make it a stronger contender.

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Alvaro Campos has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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