Audience growth is no longer a problem for Twitter. That’s great, especially since Twitter has plenty of new problems.
In the first quarter of 2017, Twitter’s overall revenue declined year over year for the first time ever, and its advertising revenue declined for the second straight quarter. That’s bad, right? Apparently not to Wall Street investors. Despite the revenue declines, Twitter’s stock price was up by more than 10 percent after the company released its quarterly earnings report on Wednesday.
What gives?
For starters, Wall Street analysts expected Twitter to have a really bad quarter, revenue-wise. Twitter beat those low expectations. Twitter also showed that it has overcome the audience growth struggles that have plagued the company for the past few years.
In Q1 2016, Twitter’s year-over-year growth in both monthly audience and daily audience accelerated for the fourth straight quarter. The number of people checking Twitter each month increased by 6 percent year over year to 328 million people, and the number of people checking Twitter each day increased by 14 percent year over year, though Twitter still doesn’t say exactly how big its daily audience is.
It’s weird that Twitter’s audience growth has coincided with revenue shrinkage. And it’s weird that Wall Street apparently doesn’t think it’s weird that more users isn’t translating into more money. But when it comes to Twitter, weird is often the norm.
Twitter expects its audience growth to eventually translate into revenue growth, but maybe not for a while. Revenue growth will “meaningfully lag audience growth in 2017,” according to the company’s letter to shareholders posted on Wednesday.
Maybe there’s ample reason to believe Twitter’s revenue growth will return. Maybe Twitter is laying the foundation to sustainably re-accelerate revenue growth in a year or so, the way it has laid the foundation to sustainably re-accelerate audience growth over the past year.
During the company’s earnings call on Wednesday, Twitter CEO Jack Dorsey and COO/CFO Anthony Noto once again cited product improvements, like the algorithmic mini-timeline and more relevant notifications, as major reasons for its continued audience growth. But Noto also mentioned two other significant contributing factors. “Q1 is typically our seasonally strongest quarter for [monthly audience] growth,” he said. And he also said that new and resurrected users followed “more news and political accounts in Q1, particularly in the US.”
The evidence that more people are turning to Twitter for news indicates that Twitter is making good on its mission to be where people turn to see what’s happening in the world. And that could hint at Twitter’s potential to convert that attention from its growing audience into currency with advertisers, which could explain the 32 upfront ad-buying agreements Twitter reached with advertisers since its last earnings call in February.
Also helping Twitter’s advertiser pitch is video. In Q1 2017, 45 million people tuned into Twitter’s premium live shows, which include news programs by Bloomberg and Cheddar, as well as syndicated NHL games. Noto said that 50 percent of Twitter’s live-streaming audience is under 25 years old and that 50 percent of viewers are outside the US. And he told BuzzFeed that Twitter wants to eventually broadcast live video 24 hours a day, seven days a week.
Live video has helped video ads become Twitter’s “single largest revenue-generating ad format,” according to the company. But it’s unclear how much of that is the result of advertisers’ increased interest in Twitter’s video ads versus their decreased interest in Twitter’s other ad types.
Twitter’s revenue from its original ad format, the promoted tweet, as well as from its direct-response ad formats, declined year over year, the company said. As further evidence of Twitter’s longstanding direct-response struggles, Noto said that TellApart — the ad-tech firm it bought in 2015 for $479 million to boost its direct-response business — will eventually contribute zero revenue as Twitter shuts down that product.
Deflating interest in Twitter’s non-video ads coincided with continued deflation in Twitter’s ad prices. Thanks to Twitter’s autoplay video ads, the number of times people engaged with an ad on Twitter — such as by watching a video ad, retweeting an ad or clicking on an ad’s link — jumped by 139 percent year over year in Q1. But the average amount of money Twitter makes per ad engagement fell by 63 percent year over year.
In other words, Twitter has convinced more people to check out Twitter and even more of its ads, but it still needs to convince advertisers that those people and those ads are worth more money.
Or maybe it doesn’t. Maybe Twitter could start outsourcing the sale of some ads on its owned-and-operated properties. In a way, it already has, by making some on-Twitter ads available through its MoPub ad exchange.
“If we can better monetize our inventory through third-party relationships, we will do that. We’re currently testing MoPub buying on Twitter owned-and-operated at a small-scale. We’ll do tests with other third parties to see if we can improve the monetization of specific ad formats,” said Noto.
While selling promoted tweets through third-party ad exchanges — where they can be bought alongside other publishers’ inventory risks commodifying Twitter’s inventory and its audience — it could also improve Twitter’s ability to find buyers for those ads, and even improve those ads’ prices if they perform better when more easily compared to other publishers’ inventory. And it could free up Twitter’s sales team to focus on selling video ads to brand advertisers, so that the company is no longer competing for the scatter market — the money advertisers sprinkle on here-and-there TV ad spots — but for a slice of their primary TV budgets.
But Twitter has tried to supplement its ad revenue before. It started selling ads off Twitter. It started showing ads to logged-out users visiting Twitter. And it started selling ad versions of its Moments storytelling product. But, with off-Twitter ad revenue in decline and logged-out users and Moments described by Noto on Wednesday as “areas we’re not monetizing” (despite the fact that Twitter has tried to monetize them), none appear to have moved the needle.
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Author: Tim Peterson
The post What marketers should know about Twitter’s Q1 2017 earnings appeared first on On Page SEO Checker.
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