With the Twitter IPO looming, many investors are comparing Twitter to Facebook (NASDAQ:FB). Yes, they are both social media outlets, but at the same time, investors are missing what Twitter has to offer. Twitter seeks to succeed in the future through utilization of its strong user base and mobile advertising appeal.
The difference between Twitter and Facebook
Unlike Facebook, users are limited to 140 characters for each of their "tweets," also known as a status update. As a result, the volume of Twitter updates is far larger than those on Facebook. Users can also share other status updates by "retweeting." Twitter users retweet a lot, to share something with their followers that they find funny or interesting. This appeals to businesses, as a simple message can be spread very fast. If you'd like to see a visual representation of Twitter, take the tour.
According to Beevolve, a whopping 74% of Twitter's users are between 15-25 years old. If your average 40 year old investor made a Twitter account just to check it out, he would never really see what Twitter actually is. He would garner the common misconception shared by most older investors: Twitter is just for celebrities and none of my friends use it. This is incorrect because a young adult or teenager has a completely different experience. Twitter has a younger target audience than Facebook, which will help its growth into the future.
Facebook and Instagram are still the most popular photo sharing platforms, but Twitter has taken over the status update game. If you watch TV, you have most likely seen a #showname in the bottom right corner, intended for Twitter users to engage in conversation about the show. A Facebook option usually isn't included because people are simply too stingy about updating their Facebook accounts. On the other hand, Twitter is perfect.
Twitter's massive marketing potential
People use hashtags for their favorite shows all the time, and can see what others are thinking by looking at tweets using the same hashtag. Twitter has recently introduced its Amplify program for TV networks, with the promise that Twitter ads appearing on tablets and smartphones will be associated with TV shows, thereby optimizing advertising efforts.
Furthermore, when users see their friends raving about a show or product, they don't want to miss out. Twitter is the new way of trying to fit in with the crowd. Twitter also lets advertisers place tweets into users' Twitter feeds, even if those individuals aren't following that advertiser's Twitter account. These tweets are known as "Promoted Tweets."
In the beginning of September, Twitter announced that it had agreed to acquire MoPub, a start-up that acts as a middleman in placing ads from marketers inside mobile applications. The key to that endeavor is mobile. The acquisition will help Twitter immensely, as it will improve the placement of ads in users' feeds. If advertisers know their messages will be delivered to their ideal target audience, they'll be willing to pay more.
Twitter's revenue in the third quarter more than doubled from the year before to $168.6 million, while its net loss tripled to $64.6 million. These numbers don't look pretty, but that is what a business committing everything to growth looks like. An encouraging sign, ad revenue shot up 247% last year.
Foolish final thoughts
The younger age range is Twitter's biggest supporter right now, and as time goes on, Twitter's user base will continue to grow rapidly as a new technology-based generation takes over the world.
The upcoming Twitter IPO will be fun to watch, but I don't plan on getting in on it right away. Hopefully, a drop in price will provide a nice entry point. Many investors have labeled Twitter as another business that will fail. I urge you to at least keep Twitter on you watch list, even if you are not a big fan. Who knows, I might be Tweeting with my (hopefully) future grandson one day, as the whole world turns to technology even more than today.
Grant Hosticka has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. 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.