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The good, the bad, and the ugly: Twitter’s Q2 2017 earnings report
Twitter's revenue growth struggles continued in Q2, but now the company is experiencing audience growth issues again.
Audience growth is a problem for Twitter again — and it’s made bigger as revenue growth continues to be a challenge for the platform.
While Twitter’s second-quarter earnings report wasn’t all bad, it was a lot of bad, with some ugly and a bit of good.
This part will be quick. Twitter’s daily audience is growing. Twitter still won’t say exactly how large that daily audience is, but compared to that number a year ago, it was 12 percent larger in Q2 — marking the third straight quarter of double-digit growth.
Twitter’s live video audience also grew in Q2. During the quarter, 55 million people tuned into Twitter’s “premium” broadcasts, which include MLB games, Bloomberg News shows and Live Nation concerts, compared to roughly 43 million who watched in the Q1 2017.
While Twitter’s daily audience may be growing its monthly audience isn’t, and now its U.S. monthly audience is actually shrinking.
During Q2, 328 million people around the world used Twitter every month, the same number that used it every month in Q1 2017. But in the U.S. 68 million people used it per month, 2 million fewer than had in Q1 2017. During the company’s earnings call on Thursday, Twitter COO Anthony Noto said the company didn’t have any data to explain why its U.S. monthly audience shrunk in Q2. Not comforting.
This is bad because if Twitter isn’t getting more people to use Twitter every month, that caps the number of people that Twitter can convert to daily users. Twitter appears reliant on growing monthly users in order to grow daily users. The ratio of daily active users to monthly active users “hasn’t changed meaningfully or substantially” since 2014 when the company pegged the ratio as less than 50 percent, Noto said.
If and when Twitter hits a ceiling on how many people it can sell to advertisers, its advertising business is going to take [another] hit.
For the third straight quarter, Twitter’s advertising revenue declined year over year, dropping by 8 percent to $489.1 million. And for the second straight quarter, Twitter’s overall revenue also declined, down 5 percent to $573.9 million.
Twitter’s revenue struggles aren’t limited to its own properties. While on-Twitter ad revenue declined for the third straight quarter — falling 9 percent year over year to $436 million — off-Twitter ad revenue failed to grow for a third straight quarter, dipping by 1 percent year over year to $53 million. Twitter chalked up the off-platform ad revenue decline to TellApart, the ad-tech firm it bought in 2015 for $479 million to boost its direct-response business and is now shutting down.
As a result of the shutdown of TellApart and other unnamed products plus the NFL opting to not renew its Thursday Night Football live-streaming deal with Twitter, “we don’t expect to see revenue growth rates improve for the second half of 2017,” Noto said.
Not only is Twitter getting less money from advertisers in general, but it’s also getting less money from advertisers per ad.
For the seventh consecutive quarter, Twitter saw a decrease in the average amount of money Twitter made each time someone engaged with an ad on its platform, such as by watching a video ad, retweeting an ad or clicking on an ad’s link; this time the figure dropped by 53 percent year over year. Fortunately for Twitter, the number of times people engaged with an ad has increased every quarter since Q1 2015 and did once again in Q2 2017, up by 95 percent year over year.
This trend is the result of Twitter focusing its ad business on video and its adoption of autoplay video ads as well as pre-roll and mid-roll ads. Since people don’t have to click on the video ad to view it, Twitter is more likely to get views for these ads and therefore more likely to be able to charge advertisers. But advertisers typically aren’t willing to pay as much for these views as they are for click-to-play views that indicate more intent to watch the ad.
Advertisers are also less willing to pay as much for Twitter’s other ad products. Twitter received “lower CPEs across the majority of ad formats compared to the prior year,” according to the company’s letter to shareholders published on Thursday.
Compounding Twitter’s ad-pricing problem is its struggle to attract direct-response advertisers — who are typically willing to pay more to reach a more tightly defined target audience. For at least the third straight quarter, Twitter cited a year over year decline in revenue from its direct-response ad formats.