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Twitter Fluttering About

Posted on Friday, Feb 12th 2016

Social networking site, Twitter (NYSE: TWTR), cannot figure out the secret sauce to success. Last year, it appointed a new CEO, its co-founder Jack Dorsey. The market expected him to deliver a miracle. Last week Twitter declared results and it again failed to deliver the miracle as its growth continued to stall. Recently Twitter also edited its Timeline feature to attract a higher user base. It remains to be seen how well these edits will help Twitter.

Twitter’s Financials

For the fourth quarter of the year, Twitter’s revenues grew 48% over the year to $710 million, in line with the Street’s forecast. EPS of $0.13 was ahead of the market’s projected earnings of $0.12 per share for the quarter.

By segment, Advertising revenues grew 48% over the year to $641 million and data licensing and other revenues grew 48% to $70 million. US revenues improved 47% to $463 million and International revenues grew 51% to $247 million.

While financial metrics may have outpaced market expectations, it was a completely different story on other metrics. For the quarter, Twitter’s total average monthly active users (MAUs) grew a modest 9% to 320 million. The market was looking for 324.5 million MAUs for the period. Mobile MAUs accounted for 80% of total MAUs. MAUs excluding SMS fast followers, those users who access Twitter via feature phones, grew 6% over the year to 305 million. The metric was also down sequentially as Twitter had ended the third quarter with 307 million users. Things weren’t looking much better in the US as monthly active users for the country fell from 66 million a quarter ago to 65 million for the quarter. For comparison, during the last quarter, Facebook added 40 million new users as it continued to expand its footprint in Asia and Africa.

Within advertising metrics, during the quarter, active advertisers grew 90% over the year to 130,000. Average cost per engagement (CPE) fell 41% over the year due to the shift to auto play video service which delivers higher engagement than click-to-play video ads.

Twitter ended the year with $2.22 billion in revenues and a net loss of $0.79 per share. A year ago, it had earned revenues of $1.4 billion and reported a net loss of $0.96 per share.

For the current quarter, Twitter projected revenues of $595 million-$610 million, short of the Street’s forecast of $628 million.

Twitter’s Timeline Modification

To drive growth, Twitter is focusing on the refinement of core service. After several quarters of testing, Twitter’s new timeline is finally available to the users. Known as Best Tweets, the timeline will now rely on algorithms to determine what to show first. The feature will be used to build the while-you-were-away notification. Users will be able to first see the selection of best tweets published by the people they follow instead of the chronological sequence of Tweets that is displayed currently. The Best Tweets will show up at the top of the user’s timeline in reverse-chronological order and the remaining tweets will appear as usual. Twitter is currently launching this new feature as an optional setting. But soon Twitter will switch that to a default option for users.

The new feature has received mixed reviews from users as some users have liked the ability to catch up with the Tweets faster. But others have complained of how the feature “sometimes splits up conversations“.

Twitter’s Growth Plan

It is also working on improving its media capabilities. It has been investing heavily in its live video streaming capabilities by leveraging its existing products like Periscope. Last week, Twitter introduced First View, a new form of video advertising. The service will enable marketers to achieve significant audience reach. When a user first visits the Twitter app or logs in to twitter.com site, the top ad slot in the timelines will be a Promoted Video from a brand. It also added the ability to broadcast from a GoPro camera so that users can watch any broadcast live from a Tweet.

Twitter is improving the security on its platform. It believes in freedom of expression and wants to ensure that people feel safe on Twitter. To deal with online harassment and abuse, Twitter will be implementing technology to help detect the use of repeat abusive accounts. The feature will allow Twitter to report multiple abusive Tweets or accounts and give people simpler tools to curate and control their experience on Twitter.

According to an eMarketer report, Twitter is expected to end the current year with a 9% share of global social network ad spending. That is a very modest number when compared with Facebook’s estimated market share at 65.1%. The analyst estimated Twitter’s ad revenues to grow 45% this year compared with Facebook’s 31.5% growth. But despite the projected ad revenue growth, Twitter’s stock is not faring well. It is trading at $14.31 with a market capitalization of $9.77 billion. The stock has taken quite a beating from the 52-week high of $53.49 that it had touched back in April last year.

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