Just a couple of days ago, Twitter’s shares fell by almost 20 per cent in one hour, following leaked financial results. But with user-growth showing no signs of slowing down, why is the site failing to profit?

The reason could be down to Twitter’s advertising model, which unfortunately is responsible for most of the site’s revenue. The leaked results in question showed that Twitter has been experiencing a slow growth in advertising sales, which haven’t met up to the site’s, nor analysts’ expectations. Allegedly, the lack of sales is largely in part due to their advertisers’ unwillingness to spend on direct response ads- or those that prompt viewers to adhere to a specific call to action such as purchasing a product, downloading an app, or clicking on a link to a video, for instance. Currently, Twitter allows businesses to pay for promoted tweets, accounts, and trends, and within this, the option to drive actions to certain places, with product cards, app cards, lead generation cards, and website cards, for example. Advertisers have treated those which encourage a direct response with uncertainty, mainly because they are a relatively new advertising product from Twitter, and the site has not yet guaranteed that customers’ engagement with these can be measured effectively. To our eyes too, we imagine that these types of ads will have less appeal because they simply appear as ordinary tweets in a user’s feed, whereas previously, branded ads were image-orientated.

In order to combat its waning advertising business, Twitter recently announced acquisition of startup, TellApart, a commerce ads tech firm, to the extraordinary tune of $533 million. The purchase is intended to help Twitter advertisers reach their demographic across all devices as they move from one to the other, and give brands a way to measure how their ads are performing.  In addition, Twitter will now make it easier for businesses to purchase sponsored ads, by way of the Google-owned DoubleClicks bid manager, which will also let them track conversions and other customer behavior on tweets. This is likely to be a great reassurance to Twitter’s advertising partners, who are undoubtedly concerned with how their ads relate to ROI.

In comparison, Facebook’s advertising business is still strong, largely due to the fact that it has more available data from its users for targeting and tracking purposes- something that Twitter still lacks. Around half of Facebook’s growth can be attributed to its advertisers, with the emphasis placed on precise targeting and greater click through rates in comparison to its competitors. But where Twitter certainly has an advantage is in live conversation, which is why brands are still keen to see how their real-time marketing efforts can work on the site. The site acknowledged that it has “always been strong in terms of upper-funnel, brand-oriented goals; engagement, awareness and capturing events and moments”, and wanted to move towards maximizing “conversion-oriented goals.” Twitter recently announced that it had reached an all time-high in terms of user figures, with 302 million active users per month. Taking this into account, it will be interesting to see in the coming months whether there will be any correlation between the site’s impressive growth, and the popularity of its ads.

Do you think that Twitter would do best by scaling down the number of direct response ads? And do you think the site’s new initiatives will help boost business? We’d love to hear your thoughts as always, so please tweet to us @PracticeDigital and share your comments on our Facebook page.