Twitter Inc. Takes Another Step Toward Its $1.3 Billion Opportunity

Source: Twitter.

Back in November, Twitter CFO Anthony Noto outlined the details of the company's opportunity around logged-out visitors. While management had previously hinted that Twitter's total audience was significantly larger than its active users, Twitter's analyst day was the first time the company ever quantified it. To that end, Twitter said it sees more than 500 million unique page views from people who don't log into Twitter, and it has an even broader audience of people who view tweets syndicated to other websites and apps like FlipBoard or ESPN.

This week, the company started testing ads on one of the most popular destinations for logged-out visitors: profile pages. The move brings it closer to capitalizing on the $1.3 billion opportunity Noto outlined in November.

Going after the big fishIn November, Twitter's consumer products team detailed four types of pages logged-out visitors land on when they visit Twitter. There are search results pages, individual tweets, the home page, and profile pages. Profile pages are far and away the most popular of the four, garnering 200 million unique visitors every month (who don't log in). The home page and individual tweets each see 125 million visitors, and search results receive 75 million hits.

Earlier this year, Twitter revamped the experience for its logged-out visitors who land on its home page while simultaneously launching a partnership with Google . The deal with Google would allow the search engine to tap into Twitter's firehose and aims to send more traffic to Twitter's individual tweets pages. Logged-out visitors, however, are redirected to a redesigned homepage, which features some of the best of Twitter. On the company's fourth-quarter earnings call, CEO Dick Costolo said the homepage could see an ad or two in the future.

Now, Twitter is going after profile pages, but it's starting slowly. Ads will only appear on unverified profiles at first, and they'll only appear for logged-in users. The company is treading carefully, as verified profiles see the majority of traffic, but algorithm-generated ads have the potential to play poorly with the profile owner or a celebrity's sponsors (think athletes).

Unverified accounts are much more difficult to advertise against without the luxury of user data, so it makes sense Twitter would start with its core users. With big celebrities, it's easier for Twitter to target ads based on well-known demographics and interests associated with that person's brand. Luckily, those big celebrity accounts are the most visited profile pages by visitors -- both logged-in and logged-out.

How much are these profile ads worth?For active users, ads on profile pages create additional ad inventory for Twitter. Twitter previously indicated that it's medium-term goal is for a 5% ad load in users' timelines. The company isn't close to reaching that level yet, and it has kept ad load low in order to maximize total ad revenue as it attracts new advertising partners.

Currently, Twitter has just over 60,000 advertisers on its platform compared to the 4 million-plus advertisers using Google. As Twitter ramps up the number of advertisers on its platform, it has to counterbalance how much new ad inventory it opens up. Last quarter, the company saw ad prices increase as ad inventory didn't keep up with demand.

The additional ad inventory from profile views represents a long-term net positive, but Twitter has to balance the new inventory by attracting more advertisers.

If Twitter extends advertisements on profiles to logged-out visitors, it represents one of its biggest opportunities in monetizing that audience. As mentioned, profile pages are the top destination for logged-out visitors. But visitors would have to view a lot of profiles for a few ad units to make the kind of difference Mr. Noto believes they can.

If an average logged-out visitor viewed 10 profile pages per month, for example, the ad revenue from Twitter's 200 million visitors would total just $57 million based on the company's fourth-quarter revenue per timeline view rate. Users would have to view nine times as many ads per profile, or view nine times as many pages as my example (or some combination of the two) for the numbers to look more like Noto's.

Perhaps the opportunity really is much larger than that. Only Twitter has the actual details of how its visitors behave. $57 million isn't something to sneeze at, but for a company expected to generate nearly $2.4 billion this year, it's barely going to move the needle. $500 million, on the other hand, would make a huge difference.

The article Twitter Inc. Takes Another Step Toward Its $1.3 Billion Opportunity originally appeared on Fool.com.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.