Please ensure Javascript is enabled for purposes of website accessibility

Instagram Beats Twitter in Another Key Area

By Jamal Carnette, CFA – Mar 2, 2016 at 6:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The real customers (aka advertisers) appear to prefer Instagram over Twitter.

Image Source: Instagram/Facebook.

To say the narrative has changed for Twitter (TWTR) is an understatement. Earlier, the microblogging site was compared to Facebook (META 2.53%) in terms of potential reach and scale. Investors piled in, thinking the company would continue its high monthly active user, or MAU, growth rates for years like its larger competitor. More recently, Twitter's MAU growth has stalled, with the company reporting no sequential total MAU growth last quarter. Meanwhile, Facebook grew MAUs 3% sequentially last quarter.

As a result of slowing growth, Twitter is now compared to another social-media site: Facebook-owned Instagram. On a MAU basis, the comparison is more apt: Facebook reports 1.6 billion MAUs, Instagram reports 400 million, and Twitter's MAU figure is 320 million. However, Instagram is still rapidly growing by adding the last 100 million MAUs to its rolls in less than a year while Twitter has added less than 30 million. Advertisers have noticed. The company says it now has 200,000 active advertisers -- up from just hundreds last summer -- more than Twitter's 130,000 active advertisers.

Do you want to Instagram that?
However, Instagram has a built-in advantage that Twitter does not have: Facebook. Facebook's 2.5 million-strong advertiser base has the ability to quickly add Instagram ads during the initial transaction. Essentially, Instagram becomes an add-on purchase to increase the marketing spend for advertisers -- like "super-sizing" the ad purchase.

But even if advertisers didn't have an existing relationship with Facebook, it appears Instagram may be a better format for ad spend. The combination of a larger, faster-growing audience with more characters to form an advertising message makes Instagram a better fit for advertisers than Twitter.

eMarketer predicts even more growth
Marketing-data research firm eMarketer predicts even more growth for Instagram going forward. In October, the company estimated the percentage of U.S. companies using Instagram for marketing purposes would grow from 32.3% in 2015 to 70.7% in 2017. eMarketer predicts Instagram will surpass Twitter that year as the latter company will only increase 1.4 percentage points, from 65.8% of businesses to 67.2%. As a result, look for the number of Instagram monthly active advertisers to continue to outpace Twitter.

For Facebook, this is a decided win. In addition to owning the largest social-media site, it also has the fastest-growing one. Advertising revenue should increase as the company continues to monetize Instagram alongside its core Facebook product. Furthermore, the dual tailwinds of a shift to digital ad spend and increased market share within the format should show up in Facebook's top line.

Although the news is decidedly less positive for Twitter, marketing is not a zero-sum equation – a win for Instagram is not necessarily a loss for Twitter. Twitter could continue to grow revenue as many advertisers are increasingly shifting ad spend from traditional outlets such as TV and print to digital outlets like desktop and mobile, but will probably continue to shrink its market share within the digital format. Are favorable sector headwinds enough to reverse the company's slide? Perhaps. Working on profitability would go a long way toward restoring investor confidence.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. 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.

Stocks Mentioned

Twitter Stock Quote
Meta Platforms Stock Quote
Meta Platforms
$123.49 (2.53%) $3.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.