Twitter Is Making Money. It Needs to Add More Users.
February 5, 2014, 2:01 PM PST
By Mike Isaac
Twitter’s first earnings numbers are in, and the Street didn’t like what it saw.
Despite beating analysts’ revenue and earnings expectations, Twitter’s user growth numbers are slouching. Shares fell off a cliff in after-hours, trading down 12 percent at about $58.70.
The company is doing well selling ads. Ad revenue per user is up. And more than 75 percent of the company’s revenue comes from mobile devices. These are all good things.
Bad news is, Twitter is having a heck of a time adding new users to its platform. It only added 9 million new users last quarter, and has significant retention problems.
Which is important. If Twitter effectively stays a “niche” service that’s hard for the mainstream to understand, then it’s hard to believe the pitch that it’s the perfect “second-screen” TV experience.
Take a look at my live-blogged notes from the company’s first earnings call earlier Wednesday afternoon, below.
And we’re off!
Right now, a bunch of the usual “forward-looking statements” rigamarole.
Still hoping Dick Costolo will answer my question.
Costolo is on the call, and he’s kicking it off with explaining just exactly what Twitter is.
Which is probably a good idea!
“Public, real-time, conversational, distributed.”
Yep. If you know how to use Twitter, this part of the earnings call is a snooze-fest.
However! If you’re one of the billions of other people in the world who have no idea how to get the hang of Twitter, this may be helpful. But I doubt it.
“We are confident in our ability to continue to scale revenue by expanding our global reach & scaling our ad products …even if we continue to maintain some of the industry’s strictest limits…” Costolo said.
He’s also addressing the problems with the user base growth. “Doubling down,” as he calls it. A familiar buzz-term in Valley circles.
Costolo playing up search, says “much simpler user onboarding experiences” coming.
Costolo: Important to realize that it will be a “combination of changes” over the coming year that will help redirect the growth curve.
Hmm. So Costolo saying that Twitter is increasing the value of each Timeline view — despite the reduction in the actual views.
Threaded conversations are an example of this. So basically, with some of the product changes that Twitter has made, it makes it easier to understand it and requires fewer views.
I guess that’s a feasible explanation, to some degree.
So basically, Costolo saying “don’t worry. Even though the Timeline views are fewer, they’re better ones.”
Costolo giving props to his product team and the rapid “experimentation” culture for launching new ideas.
This, despite the departure of VP of Product Michael Sippey last month.
Things to come: Improvements on mobile user experience!
More “rich media experiences” to come. I.e., think of a Twitter that looks more like Tumblr or Instagram.
More “conversation” centric updates. Make it easier to talk to people.
“Topic-based discovery on our platform will make it easier to use for everyone.”
Very interesting. It’s Twitter moving away from it’s strictly reverse-chronological product origins.
Now CFO Mike Gupta dishing on the strong ad revenue performance.
Gupta talking about how awesome Twitter is at mobile ads. More than 75 percent of overall revs.
Gupta explaining why the ad rates are relatively low. Over time, it means higher quality ads and more engagement, says he.
Twitter staying “very conservative” with ad load, too, so as not to tick off its users.
Capital expenditures growing, yadda yadda.
Ah, 2,700 employees as of December 31st. That’s a lot!
(Though about a third of Facebook’s headcount, for scale.)
Again, Gupta attributing Twitter’s drop in Timeline views to the improvements in product that make it easier for folks to get what’s happening on Twitter.
Retailers love us! Black Friday! Cyber Monday! — Gupta
Okay, so Twitter doesn’t really care about data licensing revenues (like I totally said a while ago).
It’s a media company, focused on advertising. So don’t think of any data deals as dark horses for bolstering the bottom line.
Costolo finishing up his opening remarks with a very strong pitch:
It’ll be easier to understand Twitter for newbies, while we’ll do a better job keeping the existing users.
“We have only scratched the surface of what we believe Twitter can become.” — Costolo
In other words, they know they have a big user growth problem. Big churn problem. And they need to deal with it.
Okey doke, time for analyst questions.
“Up until last year our growth has been viral and organic — growth was something that happened to us.” — Costolo
Now last quarter he attributes growth to direct product changes.
Interesting if I’m understanding that correctly — big faith in future product roadmap.
“We simply need to make Twitter a better Twitter.” — Dick Costolo
Really underscoring his previous points.
Basically, expect product launches around making Twitter more conversational, getting more media in the timeline.
Oh, and more Private Messaging!
“Topic-based discovery on the platform makes Twitter easier to understand for everyone.”
Pay attention to that.
Man, the analysts are totally harping on how terrible the user growth is.
Costolo playing up an “experimental infrastructure” for product releases. That’s why he’s optimistic on why they’ll be able to attract and keep users.
Cool — someone asked an e-commerce question.
Costolo highlighting the hire of Nathan Hubbard last year.
But really saying that e-commerce already happens all across Twitter.
Nathan Hubbard, of course, is ex-Ticketmaster.
Costolo playing up Twitter commerce via Twitter Cards.
Another user experience question, and a focus on timeline views.
Gupta talking about balance in ad load and not screwing up what it’s like to actually use Twitter without getting a face full of ads.
Morgan Stanley dude is on mute.
And now he hung up. Whoops.
A question from Mark Mahaney (who is a smart guy) about Amplify, Twitter’s other ad program.
It’s early, says Gupta, but promising. Signed a bunch of new sports, news, weather partners.
Costolo still saying the company has a clear roadmap on keeping people sticking around.
Won’t speak specifically to churn and retention problems.
Costolo: Everyone knows what Twitter is! But we want more folks to “get it.”
CFO Gupta gives big props to Twitter and TV — as he should, since it’s Twitter’s “thing.”
So Costolo not necessarily for or against multi-app strategy.
Leaving the door open.
Which is interesting when you compare that against Facebook’s new tack.
But Twitter Music was a flop, and Vine is still a TBD. So we’ll see.
Hmm, important to note that Twitter’s 2014 outlook isn’t based on some crazy jump in user numbers, but in better ad targeting and a broader array of better advertisers.
In other words, better ads will mean more engagement.
Ah, Costolo signs off by saying he’ll call his mom soon.
And that’s a wrap!