Link to Article: http://www.wsj.com/articles/twitter-revenue-rises-74-1430250091
Twitter just delivered its weakest quarterly revenue growth as a publicly traded company, casting a shadow on its fledging advertising business, which until now has been a consistent bright spot.
Twitter’s revenue, which grew 74% from a year earlier to $435.9 million, fell short of its own projections as well as analyst’s forecasts.
Until now, Twitter’s advertising business has continually defied skeptics, by roughly doubling its revenue each quarter over the past year.
Since its initial public offering (IPO) more than a year ago, Twitter has increased its advertising offerings and improved the ad’s ability to target users.
What is more troubling is that Twitter only increased its active monthly users by 14 million from the previous quarter, bringing their total monthly active users to 302 million.
“Twitter has yet to make a profit amid continuing investments in new data centers, office expansion and staff. For the latest quarter, Twitter reported a loss of $162 million, 23% wider than its year-earlier losses.”
Twitter’s management attributed the results to subpar performance of its newer “direct response” ads, which are advertisements that resemble tweets and let users click on them and take an action, such as downloading an app. That setback was especially troubling given how strongly these types of ads have performed for other companies, such as Facebook.
Nomura analyst Anthony DiClemente, had estimated that app-install ads, a type of direct-response ad, could account for as much as $700 million, or more than a third, of Twitter’s revenue for the year. However, when the results came out, he was quoted saying that the results show “there’s a pretty competitive environment out there. It is concerning that Twitter’s ad revenue per user has decelerated for four consecutive quarters.”
Questions to consider:
- Why are Twitter’s direct response ads (which are advertisements that resemble tweets that let users click on them and take an action) not working as well as on other social media websites, such as Facebook? What should Twitter do to increase their performance in this area?
- Is the fact that Twitter only increased its active monthly users by 14 million last quarter a cause for concern? And if so, how should they go about acquiring new users?
- What is to make of the fact that Twitter has yet to make a profit? Should it continue to focus on these types of ads which are consistently falling short of expectations, or should it broaden its scope and attempt a different type of advertising strategy to generate more revenue?