Twitter is experiencing the pains of being a public company. Following its earnings announcement this morning, the stock has been down as much as a staggering 17 per cent in after-hours trading, wiping more than $6 billion in market capitalisation in a matter of hours.
The reason? Sluggish user growth spooked investors. User growth quarter on quarter was a modest 3.8 per cent, taking Twitter to 241 million monthly active users. This means in the three months ending December 31, Twitter added just 9 million users. For the same period, Facebook increased user numbers by 39 million, taking its total to 1.228 billion monthly users. This makes Facebook more than five times the scale of Twitter in terms of usage, with both growing at approximately the same rate.
The larger concern, however, was the quarter-on-quarter dip in timeline views. For Twitter, timeline views are the best indicator of user engagement as they demonstrate how frequently a user is checking their timeline. Quarter on quarter this was down 7 per cent and declined for the first time in the two years of data provided by the company in its earnings. In real terms, this means that average user engagement on the Twitter platform is down 10.4 per cent.
The news wasn’t all bad. Quarterly revenue was up 116 per cent year on year, reaching a record $243 million. Yield dramatically improved as well, with average revenue per thousand timeline views up 76 per cent year on year to $1.49. This demonstrates that Twitter has a significant amount of upside when it comes to advertising revenue opportunity.
The longer-term question is: where will future growth come from? There is no question Twitter has strong short-term prospects around advertising revenue - it is well received by large agencies and is aggressively setting up sales presences across the globe to service large advertisers. It may not have the scale of Facebook, but there is an appetite from a large volume of advertisers to test the waters.
The dramatic stock price slide we are seeing happen before our eyes today clearly demonstrates the pitfalls of becoming a public company. When Twitter was private, it could craft its own growth story, safe in the knowledge all sensitive data was confidential. The lack of information was a benefit: it built the hype and appetite. However, investors now have complete clarity around the business and where its dangers lie.
One of those dangers is growth. Where will it come from? This question remains unanswered. Twitter has enjoyed significant growth from celebrity take-up of the platform over the past three years. Twitter’s top 100 is dominated by celebrities – musicians, actors, people famous for being famous – which has unintentionally turned the platform for many into a modern, real-time version of a reality TV show, offering behind the scenes access into the world of celebrity. When these big names jumped on board the platform they attracted millions of new users to the world of Twitter – think Oprah, Justin Bieber, Barack Obama – yet now we aren’t seeing those sorts of breakthrough moments that expose the platform to tens of millions of new eyeballs.
The second danger is all around yield. Facebook and Twitter differ in that Facebook is able to extract revenue per month from its users. Twitter generates $1 per user month, based on its last quarter results. For the same quarter Facebook generated $2.14 –114 per cent more. In the US, the dominant market for both companies’ revenue, Twitter is eclipsed by Facebook when it comes to revenue per user, with Facebook earning approximately double per user per month than Twitter.
This presents Twitter with the unpleasant reality of sluggish growth and yield challenges. Both need to be addressed. Yield is the easier problem: Twitter is still taking a softly, softly approach when it comes to advertising impact. Usage is the harder one, and one presently heavily reliant on external factors.
Twitter chief Dick Costolo offered brief remarks in the companies official release. “Twitter finished a great year with our strongest financial quarter to date,” he said. Wall Street doesn’t seem to agree.