Is Twitter’s audience really bigger than Facebook’s? Depends how you measure

Twitter announced its third quarter earnings yesterday and investors didn’t like what they saw, driving the stock down around 10 percent. The company’s lack of profits and slowing user growth has marred its relatively strong financial performance over its first year as a public company. On the call that followed, CEO Dick Costolo said the company’s goal was to have the largest audience in the world. He laid out his vision for measuring the true size of Twitter, trying to give Wall Street a narrative they could rally behind — and it was a doozy.

“You should think about the size of our total audience as a series of geometrically eccentric circles,” Costolo explained. (He may have meant concentric circles, but he said “eccentric circles” twice during the course of the call.) At the center of this geometric oddity are the 284 million monthly active users who log in to Twitter. Beyond that, Costolo’s logic goes, is a second circle of people who come to Twitter every month and read tweets, but don’t log in. That group is roughly 1-2 times the size of its logged-in audience, says Costolo. Beyond that is an even larger group of people who consume tweets when they see them embedded in web pages and syndicated on television.

Add all those numbers up and you get an audience that is equal to or larger than the 1.3 billion people who use Facebook every month. Costolo would like investors to believe that is a huge untapped opportunity for growth in Twitter’s business, but so far they aren’t buying it. The stock is currently sitting slightly above its IPO price and well below its record high in January of this year. Still, there may be real upside behind the company’s fuzzy math.

Right now, people who are not logged into Twitter don’t see ads. People who are logged in but are using Twitter on third-party apps, or even Twitter’s own TweetDeck, also don’t see ads. Costolo says all that will change. “We will think about and look for opportunities to provide our native advertising units in syndication, both to other Twitter-based properties, like TweetDeck, and across the entire mobile application ecosystem.”

The company just rolled out a new mobile developer platform, Fabric, which it hopes will encourage lots of new apps to show its tweets in a way that can make Twitter money. Costolo said there are already over 10,000 developers using Fabric, reaching more than one billion iOS and Android users collectively. Twitter has plans to help those developers make money against all those tweets through MoPub, a mobile ad exchange it acquired last year.

CFO Anthony Noto pointed out that a lot of people who end up at Twitter’s site but aren’t logged in have arrived because they searched for a specific person or topic on a major search engine like Google or Bing. Right now Twitter doesn’t make any money off of them, but Noto emphasized that there is quite a bit of user intent Twitter can measure there — just as Google does during a search — something that advertisers value.

Twitter makes an average of roughly $3-4 per user, well below Facebook and Google. But Noto thinks that can improve drastically. “We see nothing structurally preventing us from reaching the monetization levels of our industry peers,” he argued on the earnings call, citing $10 per user as a goal.

As a rabid Twitter user, I watched with interest when my father, who is over 60 years old and retired, began experimenting with the service. He started out browsing it without logging in, just checking the timelines of some newsmakers he finds interesting. That went on for nearly a year. After a while he began using it often enough that it was worth creating an account, but I’m not sure he would have done it without me around to help him set it up.

I don’t think he’s ever written a single tweet, but he now checks it at least once a day when he’s home on his computer. For him, Twitter delivers ideas, jokes, and links from people he respects and admires. Twitter’s big argument is that they can monetize folks like my dad earlier, and do more to ensure they bring him fully into the fold.

If the company could succeed at that, would it achieve Costolo’s long term goal of the largest audience in the world? Facebook will likely continue to be much larger than Twitter in terms of its logged-in user base, but the vast majority of the activity that happens on its platform is private. Twitter has always been a very public network, which means a lot of people are going to get value out of it without having to sign up. The big question for Twitter is whether or not it can get value back.