Twitter has two big problems now – user and ad business, but no one knows how to solve it, not even CEO and Co-Founder Jack Dorsey. Just a few days back the company posted its Q1 2016 revenues, it missed out on revenue, and as a result the stocks were trading more than 13% down.
Twitter reported revenues of $595 million, with Q1 GAAP diluted earnings per share of ($0.12) and non-GAAP diluted EPS of $0.15. Analysts’ expectations for non-GAAP EPS averaged out at $0.10, while the average estimate for revenues was $608 million. That is a big miss by Twitter.
It was also informed that the company remains unprofitable with the net loss it reported this quarter coming in at negative $79.7 million. GAAP EPS was expected at negative $0.17. Twitter itself provided revenue guidance of $595 million to $610 million. With the company missing out in Q1 revenues, the company has issued more bad news to follow in Q2. Twitter expects revenues between $590 million and $610 million. Basically, it could be worse than Q1 2016.
This is a bad start for Twitter in 2016, compared to Q4 2015 when the company had reported better than expected profit. In Q4 2015, Twitter earned $0.12 per share on an adjusted basis on revenue of $479 million during the period. The street had expected Twitter to earn an adjusted $0.06 per share on revenue of $453.14 million.
The state of Twitter’s dipping revenue growth can be very well understood by the MoffettNathanson analyst Michael Nathanson’s chart:
As you can see the blue line representing sales on Twitter’s own properties dropping faster than the rest of Twitter’s revenue, is an indication that brand advertisers are pulling away from Twitter faster than direct response advertisers.
Twitter has been pushing video ads to boost the revenues but it has taken a hit. For starters, its autoplay video ads are “primarily” to blame for the 58 percent decline in the average price brands pay for people to engage with their ads, according to the company. And instead of siphoning money from brands’ TV or digital video budgets, it’s redirecting the money that advertisers are already spending on Twitter ads, reports Marketing Land. Twitter said that its video ad revenue stemmed “largely” from marketers redirecting the money they would have spent on normal Promoted Tweet campaigns to Promoted Video campaigns.
“We’re hearing from marketers that growth in overall video spend on Twitter will be driven by tapping into incremental online video budgets, which in turn requires us to provide a set of additional features including more detailed demographic targeting and verification, and reach and frequency planning and purchasing. These features are in development and will launch in the fall as we bring our new NFL/Thursday Night Football ad opportunity to market,” Twitter said.
Twitter’s overall ad revenue has been slowing down, from 125 percent in Q1 2014 to 72 percent in Q1 2015, to now 37 percent in Q1 2016.Twitter has blamed the ad growth problem on its brand advertising business. “Brand marketers did not increase spend as quickly as expected in the first quarter,” the company said in its earnings letter released on Tuesday.
This should be a concern for Twitter if large brand advertisers didn’t increase the money they spend on ads as much as Twitter had expected.
Additionally, the sad story of user growth continues. Twitter reported that it has 310 monthly active users, slightly better than the last quarter. However, if you look at the image below then the picture of user growth becomes more evident. The marginal growth is due to the growth from international markets which has been standstill from Q3 2015. The sad part is the user growth story Twitter is witnessing in one of the biggest market – US. User growth has completely stopped in US from 2015 and the state is the same in Q1 2016. That isn’t encouraging for the street, investors and the team at Twitter.
While Twitter has some ideas to work out the revenues, like it is betting on its deal with the NFL to livestream Thursday Night Football games next season. Twitter has informed one Fortune 50 brand has signed a deal to advertise against the livestreams and has renewed its deals with three agency holding companies. However, Twitter right now has no idea about how to spur the user growth not only in developing markets but also developed markets like US.
Nothing is working for Twitter now, may be the social network is no more exciting for advertisers. Social networking giant Facebook had another block buster Q1 2016 earnings – the popular social network reached 1.65 billion monthly users and surpassed estimates with $5.38 billion in revenues. Twitter says it will fight with video by convincing its advertisers to upgrade their old text+photo Twitter ads with video ads, which sell at higher prices. This sounds like a good idea, but then again, it’s the same idea everyone else has — and Twitter’s already having trouble competing with everyone else, reports Re/Code.
Video is a space being chased by Google, Facebook, Instagram and Snapchat. The ephemeral messaging app Snapchat reported the daily video views have spiked to 10 billion. This means there has been a 150 percent increase in video consumption on Snapchat in just under a year. Facebook reported daily video views of 8 billion in November 2015.
Looks like Twitter has got a quick fix to its ongoing problems. Surprisingly, just a day after the disappointing earnings report, Twitter is distancing itself from being called a social network, at least that’s what its iOS app indicates. Twitter appears to have moved its app in Apple’s App Store from the “social networking” category to “news” earlier this week. The news is to be confirmed by Twitter. With this change Twitter has moved to the top of the “News” category, earlier it was at the 10th spot under the category of “Social networking.”
Will this move increase downloads of Twitter? As of now Twitter’s downloads have stayed the same despite the switch.