New advertising hopes spark rally in Twitter
After some erratic performance since its public debut, Twitter (TWTR) shares rallied Tuesday, closing at a high of $51.99. The day's 6% gain followed a 9% jump on Monday. The upward movement began as rumors of a new advertising product became public last week, one day before Twitter announced it.
The service is called Tailored Audiences, according to the company's blog. It allows an advertiser to track people who come to its website through browser cookies. The advertiser then shares the information from the cookies with Twitter, which then matches the identified people with corresponding Twitter accounts. Then Twitter sends a promotional message to exactly these people. Here's an example that the company offered:
Let’s say a hotel brand wants to advertise a promotion on Twitter and they’d prefer to show their ad to travel enthusiasts who have recently visited their website. To get the special offer to those people who are also on Twitter, the hotel brand may share with us browser-related information (browser cookie ID) through an ads partner. We can then match that information to Twitter accounts in order to show the matched users a Promoted Tweet with the travel deal.
Twitter had mentioned the launch of an experimental program in June, according to TechCrunch. In theory, advertisers would like such a service because it allows them to pinpoint the people it believes are most likely to be interested in its marketing messages.
In addition, because of the large portion of Twitter users who gain access via mobile devices, advertisers could potentially reach people when they were away from home or office, either reinforcing other messages or unrolling campaigns intended to direct people into stores.
Investors are enthusiastic because such a service could allow Twitter to charge premium rates, increase its revenue, move ahead of competitors like Facebook (FB) because of strength in mobile, and promise higher growth in the future.
Twitter's performance has been up and down since its IPO, as the chart below from Google Finance shows.
While investors who bought immediately after the Twitter IPO must be happy about the climb, it is unclear how high the stock can go or how long the rally could last. Twitter still faces significant challenges to its business model, including losses, slowing growth of users and too much U.S. dependence. With this week's run-up, it also needs to prove that it has developed advertising services that will be effective on its mobile version and allow it to charge marketers a premium price.