Twitter’s User Base Not Big Enough To Attract More Advertisers

Twitter, the microblogging company that allows its users to send 140 characters of message revealed that it has over 215 million monthly actives users (MAUs) in initial public offering (IPO) filing with regulators. Advertisers were not impressed, and emphasized that its current user base is not big enough, according to report from the Wall Street Journal.

Advertising agencies indicated that Twitter, which is set to go public under the ticker symbol “TWTR” needs to grow its user base and sales force to encourage mass-market clients to increase their marketing budget on the platform.

Adam Shlachter, senior vice president of media at Digital LBi, a digital advertising firm owned by Publicis Groupe S.A. (OTCMKTS:PUBGY) said, “Scale still matters. How consumers embrace [Twitter] and tap into it or tune in or out is going to be critical.”

Last year, Twitter generated $316.9 million revenue. The company generates 85% of its revenue from advertising. Many believe that the microblogging company is facing a great challenge because its MAUs growth rate to 7% in the second quarter. In the previous quarters, the company’s MAU growth rate was around 10% to 11%.

In addition, advertisers cannot avoid comparing Twitter with its rival Facebook (NASDAQ:FB), with more than 1.15 billion MAUs and its mobile MAUs were 819 million as of June 30, 2013. According to a study from Forrester Research (NASDAQ:FORR), 22% of internet users in the United States use Twitter while 72% check their Facebook at least once a month.

Advertisers identified another challenge for Twitter, which is to persuade its users to use its platform on a regular basis. They noticed that users tend to use Twitter when there are big issues, calamities, and big event such as the Super Bowl.

Shlachter said, advertisers want to make sure that Twitter has a “consistent audience to tap into and it’s not an audience that is just churning in and out.”

Twitter acknowledged that its business is at risk if it fails to grow the number of its user base and the level of engagement. The company said failure to accomplish these things “could result in the loss of advertisers and revenue.”

Pivotal Research Group analyst, Brian Wiser noted that advertisers are currently spending more on Facebook than Twitter. However, he expressed optimism on the future of the microblogging company. He believed Twitter is “clued in” to the concerns of advertisers.

Jeff Charney, chief marketing officer of Progressive Corporation opined, “The 200 million-plus Twitter nation is a powerful and influential force that you have to pay attention to.” According to him, the insurance company will consider increasing its advertising budget on Twitter when its user base grows. He added, advertisers just “can’t ignore Facebook” because it has “more heft.”

Vic Kathria, managing partner of MediaCom said Twitter needs to focus on “making the service useful and relevant to masses,” and the company “need to find ways to connect with masses to increase engagement so it’s not a small minority who remain the power users.”