dick_costolo

Asa Mathat

Social


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.

Mike Isaac February 5, 20142:02 pm

And we’re off! 

Right now, a bunch of the usual “forward-looking statements” rigamarole. 

Mike Isaac February 5, 20142:03 pm

Still hoping Dick Costolo will answer my question. 

https://twitter.com/MikeIsaac/status/430430306802221056

Mike Isaac February 5, 20142:04 pm

Costolo is on the call, and he’s kicking it off with explaining just exactly what Twitter is. 

Which is probably a good idea! 

Mike Isaac February 5, 20142:06 pm

“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. 

Mike Isaac February 5, 20142:07 pm

“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. 

Mike Isaac February 5, 20142:08 pm

He’s also addressing the problems with the user base growth. “Doubling down,” as he calls it. A familiar buzz-term in Valley circles. 

Mike Isaac February 5, 20142:09 pm

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. 

Mike Isaac February 5, 20142:10 pm

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. 

Mike Isaac February 5, 20142:11 pm

So basically, Costolo saying “don’t worry. Even though the Timeline views are fewer, they’re better ones.” 

Mike Isaac February 5, 20142:12 pm

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. 

Mike Isaac February 5, 20142:13 pm

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.  

Mike Isaac February 5, 20142:13 pm

More “conversation” centric updates. Make it easier to talk to people. 

Mike Isaac February 5, 20142:14 pm

“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. 

Mike Isaac February 5, 20142:16 pm

Now CFO Mike Gupta dishing on the strong ad revenue performance. 

Mike Isaac February 5, 20142:17 pm

Gupta talking about how awesome Twitter is at mobile ads. More than 75 percent of overall revs. 

Also, a small highlight in Data Licensing and MoPub revenues (though quite small overall). 
Mike Isaac February 5, 20142:18 pm

Gupta explaining why the ad rates are relatively low. Over time, it means higher quality ads and more engagement, says he. 

Mike Isaac February 5, 20142:19 pm

Twitter staying “very conservative” with ad load, too, so as not to tick off its users. 

Mike Isaac February 5, 20142:19 pm

Capital expenditures growing, yadda yadda. 

Mike Isaac February 5, 20142:20 pm

Ah, 2,700 employees as of December 31st. That’s a lot! 

(Though about a third of Facebook’s headcount, for scale.)

Mike Isaac February 5, 20142:22 pm

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. 

Mike Isaac February 5, 20142:23 pm

Retailers love us! Black Friday! Cyber Monday! — Gupta

Mike Isaac February 5, 20142:24 pm

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. 

Mike Isaac February 5, 20142:25 pm

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. 

Mike Isaac February 5, 20142:25 pm

“We have only scratched the surface of what we believe Twitter can become.” — Costolo

Mike Isaac February 5, 20142:26 pm

In other words, they know they have a big user growth problem. Big churn problem. And they need to deal with it. 

Mike Isaac February 5, 20142:26 pm

Okey doke, time for analyst questions. 

Mike Isaac February 5, 20142:27 pm

“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. 

Mike Isaac February 5, 20142:28 pm

Interesting if I’m understanding that correctly — big faith in future product roadmap. 

“We simply need to make Twitter a better Twitter.” — Dick Costolo

Mike Isaac February 5, 20142:29 pm

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! 

Mike Isaac February 5, 20142:30 pm

“Topic-based discovery on the platform makes Twitter easier to understand for everyone.”

Pay attention to that. 

Mike Isaac February 5, 20142:32 pm

Man, the analysts are totally harping on how terrible the user growth is. 

Mike Isaac February 5, 20142:33 pm

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. 

Mike Isaac February 5, 20142:36 pm

Cool — someone asked an e-commerce question.
Reminder! http://recode.net/2014/01/31/is-this-what-twitter-commerce-will-look-like/

Mike Isaac February 5, 20142:37 pm

Costolo highlighting the hire of Nathan Hubbard last year. 

But really saying that e-commerce already happens all across Twitter. 

Mike Isaac February 5, 20142:38 pm

Nathan Hubbard, of course, is ex-Ticketmaster. 

Mike Isaac February 5, 20142:38 pm

Costolo playing up Twitter commerce via Twitter Cards. 

again, AHEM

http://recode.net/2014/01/31/is-this-what-twitter-commerce-will-look-like/

Mike Isaac February 5, 20142:39 pm

Another user experience question, and a focus on timeline views. 

Tough crowd. 

Mike Isaac February 5, 20142:40 pm

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. 

Mike Isaac February 5, 20142:40 pm

Morgan Stanley dude is on mute. 

Mike Isaac February 5, 20142:41 pm

And now he hung up. Whoops. 

Mike Isaac February 5, 20142:41 pm

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. 

Mike Isaac February 5, 20142:47 pm

Costolo still saying the company has a clear roadmap on keeping people sticking around. 

Won’t speak specifically to churn and retention problems. 

Mike Isaac February 5, 20142:48 pm

Costolo: Everyone knows what Twitter is! But we want more folks to “get it.” 

Mike Isaac February 5, 20142:51 pm

CFO Gupta gives big props to Twitter and TV — as he should, since it’s Twitter’s “thing.” 

Mike Isaac February 5, 20142:54 pm

So Costolo not necessarily for or against multi-app strategy. 

Leaving the door open. 

Mike Isaac February 5, 20142:56 pm

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. 

Mike Isaac February 5, 20142:59 pm

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. 

Mike Isaac February 5, 20143:00 pm

Ah, Costolo signs off by saying he’ll call his mom soon. 

Adorable. 

Mike Isaac February 5, 20143:00 pm

And that’s a wrap!




2 comments
mknopp
mknopp

Twitters biggest problem is finding anything. The firehose analogy is very apt. But the problem with a firehose is that it is nearly impossible to actually get a drink from one. The problem with Twitter is that there is so much coming so fast that it is nearly impossible to actually find anything on it. They have to fix this or they will always struggle to grow beyond where they are.


Facebook realizes this and is working on solutions (see Facebook Paper). What is Twitter doing?

Bill Herbert
Bill Herbert

Great coverage of the call. The bottom line is, this quarter was a huge setback for the TWTR-verse in terms of believing in the growth story, and ultimate probability of Twitter someday being a big, profitable business.


They lost $511 Million on a GAAP basis - a huge number. Really serious cash burn too. Not at all what investors were hoping for, I can assure you.


That's too bad, but that's reality. The (non) growth story can only be spun a few ways, and it sounded like a lot of wait-and-see and dodgy subject-shifting on the call.


Frankly, I was not impressed, and I think the stock is in big, big trouble here.


TWTR has to keep the stock up or else employees will demand more cash and benefits in super-expensive San Francisco.


This does not work too well in reverse, and I believe that real GAAP profitability is a long, long way off into the future.

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