Social-media mavens routinely lump Menlo Park, Calif.'s Facebook Inc. (Nasdaq:FB) and San Francisco's Twitter Inc. (NYSE:TWTR) together as the dynamic duo of the industry. This comparison is probably inevitable, anyway, because these are by far the two most popular, influential and widely discussed forms of social media today. But it’s a mistake to do so from an investment perspective.
The Profit Problem
Facebook, which in February marked its 10th anniversary, has the illustrious number of 1.2 billion users and is a profitable enterprise. Twitter, which just celebrated its eighth anniversary, has a meager (by comparison) 232 million-plus monthly users and has not earned a profit.
Twitter, which has a market cap of $27 billion, lifted the veil when it filed documents before its initial public offering last November. The company said it had experienced a loss of $69 million in the first six months of 2013 on revenue of $254 million.
Twitter’s prospects look good, however, as revenue jumped to $317 million by the end of last year from $28 million back in 2010. The research company eMarketer projected that Twitter’s revenue from advertising sales would increase in excess of 100% by the conclusion of this year.
That is crucial considering roughly 85% of Twitter’s revenue originates from advertising found on its website. Twitter covets traffic growth on the site because it charges advertisers based on the level of interaction that content sparks. The advertiser ultimately tends to pay Twitter per click or re-tweet. Twitter counts on its ability to reach a wide range of the social-media universe and this is a strength in its own sales pitches to Madison Avenue media buyers.
A Growing, Younger Audience
“The beauty of the Twitter advertising platform is the ads are just tweets, and instead of just going organically to your followers, they go to your followers and then whoever else you want to target them to,” Twitter CEO Dick Costolo told Fortune magazine last year.
According to the Pew Research Internet Project of December 2013, roughly 18% of online adults currently use Twitter, a bump up from the 16% who did so in 2012. Crucially, adoption levels are especially high among younger adults.
Twitter works hard to make sure its users have a satisfying experience when they take the time to either tweet or read Twitter’s content. Bringing people back again and again to Twitter is an essential component of its appeal to advertisers.
Active Users Want Instant Content
For those who will still persist in making the big comparison, Twitter’s content trumps that of Facebook in two critical areas: its timeliness and topicality. For the most part, users partake in Facebook in a rather casual fashion, based largely on how much time they may have on their hands at a given moment.
On the other hand, people peruse Twitter more actively, especially when they want instant information, in real-time, about a breaking-news event. Or, say they’re watching a television show and want to join the Twitter-sphere by issuing comments and reading what other folks are saying about the same program.
The same principle holds true when users are attending a sports event, movie, concert or play. They have a yearning to communicate and Twitter proves to be a very effective way of reaching out. This process enables Twitter’s advertisers to format their ads to more than a Twitter user’s general enjoyment and demographic features – but also to what that individual is doing at the time they glimpse the ad.
Remember, Twitter distributed the breaking story of its initial public offering by using… Twitter. Immediately afterward, thousands of users promptly retweeted the breaking news, underscoring Twitter’s use as a news distributor.
Fortune dubbed Twitter “the CNN of the Internet,” but there is a crucial difference between the two organizations. CNN has to maintain a hugely expensive infrastructure to carry out its operations. Twitter breaks news, meanwhile, on the cheap, as its user base provides valuable content. (For my two cents, I can tell you that I discovered the bombshell that the United States had killed Osama bin Laden by reading my Twitter feed.)
The Bottom Line
Twitter has established itself as an indispensable tool – obsession? – in the social-media ecosystem. President Obama has a Twitter account. So do your favorite sports stars, entertainers and authors. So, probably, do you – and that’s the whole point.
Disclosure- At the time of publication, the author did not own shares of any company mentioned in this article.
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