Twitter: Our growth is no fluke. Really

The social network points to data about interactions from TV, other websites and the World Cup as signs that it has plenty of room to grow.

twitter-offices-4276.jpg

Things are looking up at Twitter, but can it stay that way?

The company's management spent an inordinate amount of time Tuesday convincing investors and Wall Street that its surprisingly better-than-expected revenue, profit, and usage data wasn't a fluke.

The social networking giant tallied 271 million users who logged into the site at least once a month during its second fiscal quarter, which ended June 30. While that marked an anemic rise of about 6 percent from 255 million in March, it still was the largest rise in the past five quarters. The number of people interacting with the site, a metric Twitter calls "Timeline Views," rose by 10 percent from March.

Wall Street was ecstatic. Shares rose by 29 percent in after-hours trading, soaring to $49.73, well above the $44.90 close on the day of Twitter's initial public offering last November. The new enthusiasm continued Wednesday morning after market open, with Twitter's shares hovering around $47, up 20 percent from the previous day's close.

"The Twitter story sounds more sustainable," Pacific Crest analyst Evan Wilson wrote in a note to investors. Cantor Fitzgerald analyst Youssef Squali was even more pointed, writing that Twitter has a "massive user growth opportunity still."

When Twitter executives later got on a conference call with investors to discuss the company's results, they tried to describe how this growth is going to continue.

The company raised revenue forecasts for the year as a sign of confidence in its upward trajectory. Twitter discussed the World Cup in grand terms, but said the event didn't cause the bump in monthly active users reported during the quarter. It also offered new metrics to measure how many people view tweets on TV and other websites.

"Make no mistake, our total audience and reach represent a significant opportunity, and we will continue to invest in maximizing the size of our audience," said Dick Costolo, Twitter's CEO.

Escaping from Facebook's shadow

Twitter has long been seen as a second banana to Facebook, a slightly older company that's also the world's largest social network. More than 1.3 billion people use Facebook at least once a month, nearly five times the size of Twitter's user base.

But at one time, both companies struggled with critics' concerns about how they would reliably make money.

Once Facebook began offering advertising on its site, revenue began to flow. Then the company began tailoring ads for mobile devices, a catalyst for even more growth. Mobile advertising represented 62 percent of Facebook's revenue in its second quarter -- the business was a fraction of that size just two years ago.

Twitter's business is fundamentally different from Facebook, of course. Twitter is centered on communication, whereas Facebook is focused on connecting all its users in different ways, be they groups, events, pages, games, etc. Twitter also doesn't seem to particularly care where you went to school, whether you're married, or if you have a kid on the way -- valuable information that Facebook's advertisers can use to target customers more effectively.

Instead, Twitter is focused on real-time information. For instance, it curated information about the World Cup matches as they were happening, something executives said greatly increased activity among existing users.

Twitter also has a different advertising strategy, eschewing typical image-based ads for missives that look similar to the way people use the site. If Samsung wants to tell Twitter users about an upcoming smartphone, it can pay for a "promoted tweet" that will arrive in a similar form to a normal tweet on users' screens. The company has also attempted to diversify revenue, buying firms such as MoPub, an advertising technology company.

"Twitter is unique in that most technology companies disrupt other industries and disrupt other businesses," Anthony Noto, Twitter's incoming CFO, said on Tuesday's call. "But Twitter actually makes other companies and other brands better than they would otherwise be."

But analysts have expressed concern about how much growth Twitter has left. When timeline views dropped and user growth slowed in Twitter's last reported quarter, investors punished the company.

And make no mistake, Twitter still represents a tiny fraction of the Internet advertising pie. Industry researcher eMarketer expects Twitter to pull in 0.8 percent of digital advertising spending across the Web this year, up from 0.5 percent last year. By comparison, Google, the top Dog, is expected to pull in 33.8 percent. Second-place Facebook is expected to represent 7.8 percent.

Turning on the spigot

To counter naysayers, Twitter revealed an idea for a new financial metric to Wall Street: non-users. These are the masses of people who see tweets and other Twitter content on TV, published on other sites, and when they're not logged into the service. Twitter said this audience is two to three times bigger than its number of monthly active users and represents a huge opportunity.

"We have started to experiment with improving the experience for this group of unique visitors," Costolo said, noting that Twitter has revamped user profiles, and he said the company hasn't ruled out other features to help curate content for users who are either new or not even yet signed up.

Executives also assured investors that Twitter doesn't need to radically revamp its service as it's focusing on these new potential customers.

As to engaging more with current users, Twitter says it will keep investing in its core product, and it's testing new efforts like promoted videos and e-commerce sales from within Tweets, among other things.

"We're very excited about the opportunity that lies ahead of us," Costolo said.

Updated at 8:28 a.m. PT with additional background information.

About the author

Ian Sherr is an executive editor for the west coast at CNET News. He writes about social networking and manages coverage of video games, Internet giants, cybersecurity, the sharing economy, e-commerce and wearable tech. Previously, he wrote about Apple, the PC industry and video games at The Wall Street Journal. He's also written for Reuters and the Agence France-Presse, among others. He's a native of the San Francisco Bay Area, though he knows what real weather feels like too.

 

Join the discussion

Conversation powered by Livefyre

Show Comments Hide Comments
Latest Galleries from CNET
The most anticipated games of 2015
Tech industry's high-flying 2014
Uber's tumultuous ups and downs in 2014 (pictures)
The best and worst quotes of 2014 (pictures)
A roomy range from LG (pictures)
This plain GE range has all of the essentials (pictures)