Why Are Advertisers Now Rushing to Facebook, Twitter, and LinkedIn?

What's all of a sudden so great about LinkedIn and Twitter?

Aug 6, 2014 at 10:30AM

The big three social networking sites -- Facebook (NASDAQ:FB), LinkedIn (NYSE:LNKD), and Twitter (NYSE:TWTR) -- all blew the doors off earnings expectations during the second quarter. While Facebook has been solid for five consecutive quarters, such success is new for Twitter, and it's a surprise for LinkedIn after it experienced some recent weakness. However, when we look at what's driving the results, such performance really isn't all that surprising.

How good was it?
To see the degree of improvement for both Twitter and LinkedIn, one needs to look no further than each company's respective first quarter.

For example, LinkedIn gets about one-fifth of its revenue from advertising, and in the second quarter its revenue growth from this segment accelerated to 44% from 36% in the quarter prior.

Lnkd Talent Solution

Source: LinkedIn.

The company's Talent Solutions and Subscriptions segments have remained strong in quarters past, as it was advertising that kept weighing the company down. Still, even its historically strong Talent Solutions business saw a boost, as the company added 2,200 new accounts, up significantly from the 1,400 it created in the first quarter.

Meanwhile, Twitter's advertising revenue was far from being a problem, as it increased 129% versus last year and accounted for just about 90% of its $312 million in total revenue. Notably, these metrics were higher than the first quarter's growth rate.

Becoming more like Facebook?
With all things considered, Twitter and LinkedIn's strong quarters have been called an inflection point, showing that both companies are monetizing users at a better rate. But how?

The answer to this question lies in engagement, which has been one of Facebook's strengths during its emergence. Facebook boasts a social-media best $6.44 of revenue per North American user, a number that continues to rise because of successful advertising.

Fb Advertising

Furthermore, Facebook saw its advertising prices more than double during the quarter, as advertisers showed a willingness to pay a higher price thanks to more beneficial targeting products. For example, Facebook has created an immense amount of data in the past few years via likes that tell it what consumers enjoy, and it has implemented products to allow advertisers to target specific users who have visited their site, liked their products, or even have mentioned them at some point. As a result, the value of its advertising increases.

Strides in the right direction
Now, neither Twitter nor LinkedIn is on Facebook's level, but both are making strides in the right direction, as something clearly changed in the second quarter. For Twitter, its Timeline views rose 10% to 173 billion from the first quarter's 6% growth clip. And on top of that growth, its advertising revenue per 1,000 views increased to $1.60 from $1.44 in the first quarter, a clear indication of better monetization.

Twtr Changes

Source: TechCrunch.

However, perhaps no single change was more influential than LinkedIn's success with its Influencers initiative, allowing experts in top industries to gain large followings and publish lengthy content on LinkedIn's platform. Essentially, this took LinkedIn from being a job-based platform to a site of unique content and a Web publishing platform. Twitter achieved this feat by rolling out new products of its own in order to boost engagement, such as bulking up its trending tool, which allowed users to find and engage with popular tweets in an easier manner. It also focused on videos, pictures, and prioritizing important content, all of which seem to be working in the company's favor.

Lnkd Influencers

Source: Stephaniesammons.

The company said on its conference call that traffic from influencers and top publishers has more than doubled during a four-month span. Analysts were initially skeptical as to whether publishers and influencers would produce content on LinkedIn's platform because of lower engagement rates, but according to the company, it now has more than 30,000 posts per week and has experienced success by alerting LinkedIn users who might be interested in reading these posts, and by monetizing it via advertising.

Foolish thoughts
Facebook, LinkedIn, and Twitter have all grown to become enormous social-media platforms and are now transitioning to companies that are leveraging that scale with the data that's been created to launch valuable and lucrative advertising tools. This makes today a very exciting time in these companies' histories, as potential turns to reality. If you're an advertiser, the high demand and growth serves as proof that these advertising products work, which along with engagement is the key difference for why each company is thriving.

 

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Facebook, LinkedIn, and Twitter and owns shares of Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. 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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