During Twitter's (NYSE:TWTR) analyst day in November, the company announced that it had 60,000 advertisers on its platform. Earlier this month, the company announced that it had grown its active advertiser base to 100,000 and laid plans to reach thousands more. The company is expanding its self-serve ad platform from 33 countries to the rest of the world, counting businesses in some 200 countries and territories eligible to send sponsored tweets.
International revenue accounted for just 36% of Twitter's total sales last quarter, but 79% of its users are based outside the United States. Comparatively, Facebook receives about 50% of its revenue from countries outside the U.S. and Canada, which account for 86% of users. So while Twitter shouldn't expect to close that gap entirely, it's some of the low-hanging fruit left for the company to pick.
Increasing ad load
During Twitter's second-quarter earnings call, CFO Anthony Noto told investors that Twitter is still only one-third of the way toward its long-term ad load goal. Back in November at the company's analyst day, he said that goal was 5%. While the United States is probably well ahead of the curve as the first market Twitter started showing ads to and the first one to receive self-serve ads, many users in foreign countries see hardly any ads.
Twitter is working on translating tweets, but tweets, let alone advertisements, with their 140-character limit don't translate easily. As a result, many countries are left with a low demand for advertisements. Twitter purposefully keeps its ad supply low to maintain pricing for its ads. Introducing self-serve ads should enable Twitter to slowly increase its ad load in the 170 or so countries that are just now seeing more small and medium-sized business advertise.
But investors shouldn't expect a huge boost from the new countries receiving self-serve ads. The new geographies in the Asia-Pacific, Middle East, and Africa generally see lower average ad prices.
But there's a bigger problem
Twitter has just 100,000 advertisers on its platform a little more than two years after its initial launch of SMB (small and medium-sized business) advertising. Comparatively, Facebook had 1 million advertisers within four years of launching its self-serve platform. It now counts 2 million active advertisers.
Expanding the number of countries that can use self-serve advertisements on Twitter won't make Twitter's ads any more attractive. To attract more advertisers, Twitter needs to improve its audience's engagement.
Twitter has been relatively open about its problems with user engagement. On the company's second-quarter earnings call, interim CEO Jack Dorsey noted that previous product features aimed at improving engagement such as Instant Timelines and While You Were Away have failed to produce results. He's optimistic that the upcoming Project Lightning feature will help attract more users and keep them engaged with Twitter.
Engagement is important for two reasons. For one, it gives advertisers more opportunity to show their message. But more importantly, it gives Twitter significantly more data with which to target advertisements.
A recent survey from Cowen and Co. found that the majority of Twitter users consider the ads they see on the platform irrelevant. Comparatively, that's a relative strength of Facebook's, which has more data on its users than just about any company in the world. As a result, Facebook's ads are much more attractive. What's more, Facebook's targeting now extends to Instagram, so Twitter has even more competition for direct-response ads now.
Just the low-hanging fruit
As mentioned, the expansion of Twitter self-serve ads to a global scale is some of the last low-hanging fruit left for the company to pick. Many of the riper markets, such as the U.S., Canada, the U.K., France, Germany, and other wealthy nations, have already been picked in the past two years. This will move the needle slightly, but Twitter has much more difficult work ahead to attract more advertisers to its platform and grow its revenue.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns and recommends Facebook and Twitter. 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.