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Twitter’s Strategy For Addressing Slowing User Growth

Posted on Tuesday, Feb 11th 2014

Last week Twitter (NYSE: TWTR) announced results for their fourth quarter – the first result announcement since they went public. While quarterly performance exceeded market expectations, the Street wasn’t too happy with their user metrics. Twitter is looking at improving their product to counter this slowing growth.

Twitter’s Financials

Revenues for the quarter grew 116% over the year and 44% over the quarter to $242.7 million. They ended the quarter with a loss of $0.82 per share. The market was looking for revenues of $212 million with a loss of $0.10 per share for the quarter.

Revenue growth was attributed to the continued increase in advertising revenues, which grew an impressive 600% over the year and 70% over the quarter. Advertising revenue per thousand timeline views grew 76% over the year to $1.49 in the quarter. Mobile continued to show rapid adoption and accounted for more than 75% of total advertising revenues in the quarter compared with 55% a year ago. Revenues from data licensing and other sources grew 80% over the year to $23 million.

By region, international markets accounted for 27% of the revenues and grew 200% over the year to $66.0 million.

Among user metrics, average monthly active users grew 30% over the year and a comparatively modest 4% over the quarter to 241 million. Timeline views grew 26% over the year to 148 billion. Mobile monthly active users accounted for 76% of their total user base and grew 37% over the year to 184 million. By region, U.S. users grew 21% to 54 million and international users grew 33% to 187 million. The numbers were significantly lower than the Street’s expectation of 249 million monthly active users and timeline views of 174 billion.

Twitter ended the year with revenues growing 110% to $665 million and a loss of $0.18 per share.

Twitter expects to end the current quarter with revenues of $230 million-$240 million, ahead of the market’s projection of $206 million. They are looking at an adjusted EBITDA of $10 million-$16 million for the quarter. Twitter projected the year’s revenues to come in at $1.15 billion-$1.20 billion with an adjusted EBITDA of $150 million-$180 million. The Street was projecting revenues of $1.10 billion for the year.

Twitter’s Product Enhancement

During the quarter, Twitter rolled out several product upgrades to keep advertisers and users interested in their services. To improve the return on advertisement dollars for their marketers, they launched several new advertising products. TV Conversation Targeting is an innovative method of engaging with the end user. Twitter uses their conversation mapping technology to enable brands to promote Tweets to users who post about specific shows, even if the brand is not advertising on that particular show. Twitter was particularly hopeful of making use of this technology for live events and shows and had entered into partnerships with CBS and NFL towards this effort. Initial studies conducted by them have shown improved user message association and purchase intent.

To help advertisers analyze the impact of their ads, Twitter also released a new set of analytics within the TV Ads Dashboard. The analytics will give advertisers direct access to user feedback on TV ads and they will be able to optimize their Promoted Tweet campaigns to get better results.

They are also expanding their offerings internationally and recently made their platform more easily available to advertisers by launching the self-serve advertising platform to small and medium-sized businesses in the UK, Ireland, and Canada.

As part of their effort to keep users more engaged with Twitter, they launched several upgrades as well. Earlier, Twitter only allowed message exchange between users who followed each other. Through a new release, users can now exchange messages with any follower. Not only will the change help users connect with each other, but it is also expected to enable advertisers to receive private messages from their product users. The media content of these direct messages has also been upgraded and now users can exchange photos and six second videos from their video creation service Vine in direct messages.

To keep their users engaged and new ones coming, Twitter is thus focusing on four key areas – improving the mobile experience, adding wider media capabilities, increasing conversation capabilities, and enabling better content management. They believe that by improving in these areas, they will be able to deliver a more engaging experience for their users.

Twitter’s stock is trading at $54.35 with a market capitalization of $29.60 billion. It touched a high of $74.73 in December 2013. The stock had listed on the NYSE in November 2013 at $26 a piece.

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