Twitter’s ad revenue has risen but the average ad rate for the social network fell by a massive 67% during 2013, according to its latest financial report.
While ad revenue increased an impressive 121% in the 12 months to 31 December 2013, compared with 2012, the average cost per ad on Twitter decreased 675 year-on-year.
Twitter says that rates have been falling because its inventory—the supply of available space to advertise on Twitter—is increasing. It also says that lower rates appeal to small businesses and international advertisers.
The search for an acceptable ad price
However, the drop in prices suggest that the newly listed company is struggling to find a stable price that’s attractive to clients, and it could keep falling.
Twitter has attributed the drop in average ad value to the increase in its inventory, which has driven down prices.
In a statement, Twitter said: “The decreases in cost per ad engagement over these periods were primarily driven by higher ad engagements as a result of continued improvements made to our ad products and our prediction and targeting capabilities. Supply of advertising inventory increased as we expanded the distribution of our Promoted Products to our mobile applications and additional markets outside of the United States in 2012. The increase in advertising inventory provided us with additional opportunities to place ads on our platform. This reduction in cost per ad engagement made our Promoted Products more attractive for our existing advertisers and new advertisers, including small and medium sized businesses with smaller advertising budgets, as well as international advertisers.
“As we continue to optimise for advertiser value and the overall user experience, the cost per ad engagement may continue to decline over time, and we expect the cost per ad engagement to decline in the near term. In the event that cost per ad engagement continues to decline, and we are unable to continue to offset the impact of such decreases on advertising revenue by increasing the number of ad engagements, our advertising revenue would decline.
“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 optimize their campaigns and measure the results of their campaigns. We also believe our goal of maximizing 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,”
Adjusted earnings before interest, taxes, depreciation and amortization rose from $21,164 in 2012 to $75,430 in 2013. Meanwhile mobile devices accounted for over 70 per cent of its entire ad revenue in the year to 31 December 2013.
Sales and marketing costs rose from $86,551 in 2012 to $316.216 in 2013, with an overall net loss of $635,831 from operational costs in 2013 – up from a $77,083 loss in 2013.
Earnings before interest, taxes, depreciation and amortisation grew 256% 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% year on year in the fourth quarter to reach 241 million, although this growth was slower than the 39% registered a year earlier and up just 3.8% on the previous quarter.
Read the full annual report here