While ad revenue increased 121 per cent in the 12 months to 31 December, compared with 2012, the average cost per ad decreased 67 per cent year on year.
The average ad rate has been declining since the start of 2012, according to digital news site Quartz, which has been compiling data from Twitter’s regulatory files since then and claims the average cost of an ad has fallen 81 per cent in that time.
As with many digital advertising businesses, the majority of Twitter’s advertising rates are dependent on an auction based system, meaning an increase in the volume of ads is likely to make the cost of ads cheaper, but the fact that the company has not been able to maintain consistent prices could worry investors. Twitter’s share price at the time of publication was up 0.83 per cent to $54.83.
Twitter says in its annual report that its ad rates may decrease even further over time due to increasing its ad inventory – providing advertisers with more opportunities to place ads, which will drive down the cost per engagement – and also by making improvements to its prediction and targeting capabilities.
The company adds in the annual report filing with the US Securities and Exchange Commission: “We believe that, in order to increase the cost per ad engagement, we will need to increase advertiser demand for our Promoted Products by enhancing the value of such products. We plan to increase the value of our Promoted Products by increasing the size and engagement of our user base, improving our ability to target advertising to our users’ interests and improving the ability of our advertisers to optimise their campaigns and measure the results of their campaigns.
“We also believe our goal of maximising the long-term value of our platform for our users and advertisers should make Promoted Products more attractive to our existing and new advertisers and allow us to deliver more relevant ads on our platform.”
Twitter says the reduction in cost per ad engagement did succeed in making its Promoted Products more attractive for existing advertisers and new advertisers, including small and medium sized businesses, in the last year. Indeed, in November this year Twitter opened its advertising doors to small and medium-sized businesses outside the the US for the first time, via a self-service platform.
While Twitter has been able to deliver “significant revenue” through its mobile applications – with more than 75 per cent of ad revenue generated from mobile in the three months to 31 December 2013 – user engagement with its Promoted Account and Promoted Trend formats receive less prominence on the smartphone screen and therefore drive lower engagement rates on mobile than desktop. This means advertising revenue per timeline view could continue to be adversely impacted because mobile usage is increasing faster than desktop usage with the service, Twitter admitted.
Overall, Twitter’s revenue grew 110 per cent to $664.9m in the year to 31 December. Earnings before interest, taxes, depreciation and amortisation grew 256 per cent year on year to $75m. Operating expenses such as marketing and research and development meant Twitter posted a full-year net loss of $645m.
Twitter’s user base grew 30 per cent year on year in the fourth quarter to reach 241 million, although this growth was slower than the 39 per cent registered a year earlier and up just 3.8 per cent on the previous quarter.
Elsewhere Twitter today (7 March) said it has banned all pornographic content from its six-second video-sharing app Vine, a move which is likely to make the service more attractive to advertisers.