Twitter’s ad business may be becoming another one of its biggest problems


Twitter may have re-oriented itself and laid off part of its workforce to streamline its business, but it still doesn’t look like it is bringing in enough money to keep Wall Street happy.

Here is the biggest data point from the company’s fourth-quarter earnings report: according to the company, advertising revenue totaled $638 million, which was down slightly year-over-year. A reversal in its advertising growth is certainly not going to help Twitter’s case, which needs to be able to pitch itself to advertisers as a legitimate alternative to Facebook — and now Snap, which is expected to go public in March and already generated $400 million in 2016.

Twitter needed to show that it could have a strong fourth quarter given that the 2016 U.S. presidential election — probably one of the most Twitter zeitgeist-y moments of all time — happened. Beyond that, President Donald Trump is also an active Twitter user, giving it additional strength as a go-to platform for news. Despite that, revenue for its users in the U.S. was also down. Twitter was essentially gifted one of the largest news cycles and engagement moments it’s probably ever seen in its lifetime, and it still looks like its core issues on monetization are growing.

Not surprisingly, Twitter CEO Jack Dorsey specifically said on the earnings call that 2017 was the year that Twitter would be working on simplifying and building better ad products.

“2017 will be about simplifying and differentiating our revenue products,” he said. “It’ll take time for all the results we want to see.”

Twitter reported earnings of 16 cents per share on revenue of $717.2 million, whereas Wall Street was looking for earnings of 12 cents per share on $740.1 million in revenue in its fourth-quarter earnings report. So while Twitter was able to essentially operate more efficiently. it still isn’t doing the job it needs to be doing in monetizing its user base. That revenue growth is even only up marginally from the same quarter a year ago, and Twitter’s revenue growth appears to be rapidly becoming a very big sticking point for the company beyond its usual problems with slow user growth.

“As we’ve previously stated, revenue growth will continue to lag audience growth in 2017 and could now be further impacted by escalating competition for digital ad spending and the re-evaluation of our revenue product feature portfolio, which could result in the de-emphasis of certain product features,” Dorsey said as part of the earnings announcement.

Twitter’s stock continues to fall and its core business is starting to stumble, which means it’s going to be increasingly attractive to activist investors looking to agitate change in its business. While Twitter is still a platform with hundreds of millions of users, Wall Street may find itself too impatient to wait for Dorsey and his team — which are regularly churning through executives — to figure out where to take the company and start with some fresh eyes. That Dorsey splits his time between two companies (Square and Twitter) is probably not helping the situation either.

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