What's going on?
On Thursday, Twitter told investors that it made less revenue than expected last quarter and that it expects to make half as much profit in 2017 as it previously thought. The share price crashed 10%. #ouch! (tweet this)
What does this mean?
Perhaps the most worrying thing about its results was the decline in advertising revenue in what should have been a strong quarter (e.g. FB’s advertising revenue grew more than expected and the US election should have helped provide a tailwind). What is also concerning is that the declining advertising revenue comes amidst a growing number of engaged users (following a period of flat growth). That suggests that Twitter is struggling to figure out how to monetize its user base.
Why should I care?
The bigger picture: Just because ad spend is moving online doesn’t mean it’s an easy win for the likes of Twitter.
Despite the fact that advertisers are increasingly moving their ad spend online, it doesn’t mean that it’s easy for platforms to capture their cash – even for a company like Twitter, which has more than 300 million engaged users. Investors in Snap Inc. and other burgeoning digital advertising platforms should, at least, be aware of Twitter’s struggle to grow ad revenue.
For the stock: There may still be a way out of this mess for Twitter.
On the positive side of things, Twitter’s initiatives, like live streaming, have helped grow its daily active users; it’s attracted some new users, but it’s also managed to re-engage many stagnant ones. On the other hand, more competition in the digital advertising space is coming (hello Snapchat!), which typically makes it harder to increase monetization. If it can figure out how to better monetize its growing user base, it could find a way out of its mess. A more obvious solution, arguably, is that Twitter gets acquired by a bigger company – although perhaps at a much lower valuation than it previously tried to sell itself at.