By Yasmeen Abutaleb
NEW YORK (Reuters) - Twitter Inc 's (N:TWTR) efforts to reassure disaffected ad buyers may hinge on the success of two deals that were announced along with its bleak forecast on Tuesday, advertisers and analysts said.
Twitter was forced to cut prices for its new "direct response" ads, Chief Executive Officer Dick Costolo said on Tuesday after a the company issued a revenue warning for the year. Twitter shares fell 8.9 percent on Wednesday after dropping as much as 24 percent on Tuesday.
The ads, designed to get readers to click links to download an app or go to a company's web site, failed to deliver as promised. As a result, Twitter cut ad rates, impacting quarterly revenue by $4 million to $5 million, Costolo said.
"I don't think Twitter will realise its potential without being able to show advertisers more specifically what their performance on advertising is," said Colin Sebastian, senior analyst at Robert W. Baird & Co, who said the company's new deals show its willingness to adapt to advertisers' requests. "Twitter is a work in progress and clearly there's plenty of work left to do."
Twitter delivered disappointing first-quarter earnings on Tuesday, which were reported an hour early by financial data platform Selerity and sent the stock plummeting.
But it was not just the leak that traders punished. The San Francisco-based company also missed Wall Street revenue estimates by nearly $20 million, according to Thomson Reuters I/B/E/S data. It recorded $436 million in revenue and said its key measure of monthly active user had slowed.
Key to improving advertising will be measuring who clicks on what. Costolo said a new partnership with Google (NASDAQ:GOOGL)'s online advertisement service DoubleClick and the acquisition of marketing technology company TellApart, would help advertisers measure ad views, clicks and calculate investment returns.
"Twitter hasn't proven itself to be a consistent direct response channel," said Jeanne Bright, vice president and director of Paid Social, which buys ad space on Twitter and Facebook (NASDAQ:FB) for brand clients, such as American Express (NYSE:AXP), Sprint and Taco Bell. "I think there's room for Twitter to adapt and change."
Still, Twitter may face an uphill battle attracting advertisers because of its format.
Twitter's platform, which provides users with a constant stream of news events and 140-character messages from accounts they follow, makes it difficult to convince users to stop and click on promotional ads or videos, said Debra Williamson, social media marketing analyst at eMarketer.
Facebook, which has dominated direct response advertising in social media, provides a slower-paced, more curated experience, she and other analysts said.
But some analysts and Twitter itself expressed confidence it can tweak its way to success.
"Facebook is better suited for direct response than Twitter," said Victor Anthony, analyst at Axiom Capital. "But," he added, "at the end of the day, you're scrolling through a news feed on both. If it can work on Facebook, it ultimately should be able to work on Twitter."
