With Revenue Missing Forecast, Twitter Has Lots to Prove

April 27, 2016

By HV

Twitter’s advertising business, the only growth driver of the company, has slowed down in the first quarter and kept the social media company unprofitable.

The ad business has constantly exceeded 60% in growth rates over the past six years, but it’s running out of steam due to the slow spending from marketers on ads on Twitter. Sales were only up 36% from a year earlier, and the company projects the number to rise 17% in the second quarter.

The company reported revenue of $595 million, missing forecast of $607.8 million, and a net loss of $80 million in the first quarter, better than the $162 million loss from a year ago. That said, losing money is not good news for Twitter, especially when its mission is growing the business.

The company’s shares are taking a beating as a result. They plummeted 13.6%. Over the last year, the company’s shares have dropped 65%.

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Twitter is facing an increasing competition from its rivals in digital advertising, namely Facebook and Snapchat. According to eMarketer, more than 31% of advertiser digital spending in the U.S. will be captured by Mark Zuckerberg’s company this year. And that reduces Twitter’s piece of the advertising pie.

But the company has a silver lining. Despite growing modestly, the average of Twitter’s monthly users reached 310 million, up from 305 million in the last quarter. The number is enough to beat the estimate of some analysts, which gives the company a healthy and much-needed boost.

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Nevertheless, some analysts are not as optimistic. They point out most of that growth came from outside of the U.S. which proves to be less financial lucrative for Twitter. Meanwhile, the user growth in the U.S. is hitting a wall.

The company is looking into ways to revitalize its growth and recapture the interest of users. It plans to roll out new features such as GIF search and finalize a streaming deal with the NFL. Combating extremist messaging and creating a mobile app for developers are also on the to-do list.

Moreover, Twitter has been looking beyond the U.S. borders for growth opportunities. It’s putting efforts and hopes into piquing the interest of Chinese marketers and pitching its business in Japan. Data licensing business is another field Twitter wants to get a piece of.

All of these efforts are put into broadening the appeal of Twitter and reaching more segments of the population. As of now, the average time spent on Twitter per month is 2.2 hours, dwarfed by 25.9 hours users spend on Facebook on average.

It’s safe to say that Twitter wouldn’t be able to get to where Facebook is right now; the tech giant has 1.59 billion monthly users. That’s not to say Twitter can’t find a place alongside Facebook. In fact, it can and always will as long as it focuses on pushing the envelope.

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