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How Twitter Makes Money

Advertising and data licensing are the major sources of revenue

News Alert April 25, 2022, 3:00 p.m. EDT: On Monday afternoon, Twitter reported it would be acquired by Elon Musk for $54.20 per share, in a transaction valued at approximately $44 billion. Upon completion of the transaction, Twitter will become a privately held company, and its shareholders will receive $54.20 in cash for each share of common stock they own.

Twitter (TWTR), the social media company founded in 2006, is now ubiquitous via its posts—called tweets—on the Internet and all forms of media. It's best known for news-breaking tweets from politicians and celebrities, but it provides a platform for millions of users to publish their thoughts, interact, share content, and read breaking news. The platform itself is free to use for individuals and businesses alike. Once a user has created an account, they can post messages ("tweets") of up to 280 characters and up to 2,400 times per day, which are automatically distributed to followers in a feed that is constantly refreshed.

Twitter divides its revenue into two categories: the sale of advertising services, which constitutes the vast majority of the company's revenue, and data licensing and other services. Twitter's major competitors include other social media companies like Facebook parent Meta Platforms Inc. (FB), Google and YouTube parent Alphabet Inc. (GOOG), Snap Inc. (SNAP), and others.

Key Takeaways

  • Twitter is a social media company providing a platform for users to interact in real-time.
  • The company generated the vast majority of its revenue through advertising services in FY 2021.
  • Twitter's average monetizable daily active users grew to 217 million during the three-month period ended Dec. 31, 2021.
  • On April 25, Twitter reported it would be acquired and taken private by Elon Musk in a $44-billion acquisition.

Twitter's Financials

Twitter announced in February financial results for its 2021 fiscal year (FY), which ended Dec. 31, 2021. The company's net loss narrowed significantly to $221.4 million from $1.1 billion in the previous year. Annual revenue rose 36.6% year over year (YOY) to $5.1 billion. Twitter's costs and expenses rose at a faster rate than revenue and included a one-time, litigation-related charge of $765.7 million.

Twitter generates the majority of its revenue through selling ad space on its platform to global advertisers. To attract advertisers it needs a large and growing user base. Twitter measures its user base using a metric it calls monetizable daily active users (mDAU), which is broadly defined as the total number of user accounts that were logged in and accessed Twitter on any given day. Twitter's average mDAU in the fourth quarter of FY 2021 rose approximately 13% YOY to 217 million.

Twitter's Business Segments

Twitter has a single operating segment and reporting structure. However, in its financial reporting, the company does separate its revenue into two categories: advertising services; and data licensing and other.

Advertising Services

Advertising services generated $4.5 billion, or about 89%, of Twitter's revenue in FY 2021. The segment's revenue rose 40.5% compared to FY 2020. Twitter generates most of its advertising revenue by selling promoted products, including Promoted Ads and Twitter Amplify, Follower Ads, and Twitter Takeover, to advertisers.

The company creates tailored advertising opportunities by using an algorithm to make sure promoted products make it into the right users' timelines, search results, profile pages, and Tweet conversations. Advertisers have the ability to target an audience based on multiple criteria. Twitter provides ways for advertisers to build and grow an audience interested in the products or services they are offering. Advertisers also have the option to pay for ads that will appear at the top of the trending-topics list or timeline.

While the majority of revenue from advertising services is generated through Twitter's owned and operated platform, a small portion of the advertising products Twitter sells are also placed on third-party publishers’ websites, applications, and other offerings.

Data Licensing and Others

Over 11% of Twitter's revenue in FY 2021, or $571.8 million, was from data licensing and other sources. Revenue for the segment grew 12.3% compared to the previous year. Twitter also sells data licenses that enable its data partners to access and analyze historical and real-time data on the company's platform. The "other sources" include service fees Twitter collects from users of its mobile ad exchange, MoPub. However, Twitter completed the sale of its MoPub business on Jan. 1, 2022.

Twitter's Recent Developments

On April 25, 2022, Twitter announced that Elon Musk, founder and chief executive officer (CEO) of Tesla Inc. and the richest person in the world, would acquire the company for $44 billion. Upon closing, which is expected later in 2022, the company will become privately held. All shareholders will receive $54.20 in cash for each share of Twitter owned.

In early April, Musk disclosed that he owned a stake in Twitter of approximately 9.2%. On April 4, Musk was appointed to serve as a class II director on Twitter's board, but Musk backed out of the planned board seat several says later and stated his intention to buy the company. The billionaire offered to acquire Twitter for $43 billion on April 14. On April 15, Twitter's board adopted a limited duration shareholder rights plan, known as a "poison pill," in an apparent attempt to block Musk's acquisition. However, by April 25 the company's board had reversed course and agreed to Musk's offer. The transaction is subject to the approval of Twitter stockholders and pending regulatory approvals.

On Jan. 1, 2022, Twitter completed its sale of MoPub, as mentioned above. The company sold the mobile ad exchange platform to AppLovin Corp. for less than $1.1 billion in cash. Twitter said that it would terminate the MoPub platform, including its network mediation, Advanced Bidding, and Marketplace services on March 31, 2022. The MoPub Dashboard and Reporting will still be available, however, until Apr. 8, 2022.

How Twitter Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Twitter and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Twitter releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Twitter discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Twitter breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Twitter Diversity & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite
 
       
General Management ✔ (U.S. Only)      
Employees ✔ (U.S. Only)      

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
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  2. Twitter Inc. "Counting characters."

  3. Twitter, Inc. "About Twitter limits."

  4. Twitter Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 45.

  5. Twitter Inc. "Twitter Announces Fourth Quarter and Fiscal Year 2021 Results," Page 1.

  6. Twitter Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 42.

  7. Twitter Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 100.

  8. Twitter Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 46.

  9. Twitter Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 47.

  10. PRNewswire. "Elon Musk to Acquire Twitter."

  11. Wall Street Journal. "Elon Musk Takes Surprise 9% Stake in Twitter, Sending Shares Higher."

  12. Securities and Exchange Commission. "13G filed by Elon R. Musk on April 4, 2022."

  13. Wall Street Journal. "Elon Musk to Join Twitter’s Board of Directors After Becoming Largest Shareholder."

  14. Bloomberg. "Elon Musk Makes $43 Billion Unsolicited Bid to Take Twitter Private."

  15. PRNewswire. "Twitter Adopts Limited Duration Shareholder Rights Plan, Enabling All Shareholders to Realize Full Value of Company."

  16. Twitter Inc. "Twitter Completes Sale of MoPub."

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