Costolo: Twitter needs to speed up user monetization

Twitter was slammed yet again on slow user growth in Q3

Financial trends and news by Steven Loeb
October 27, 2014
Short URL: http://vator.tv/n/3a03

The pattern repeats. Once again Twitter got slammed due to slowing user growth and CEO Dick Costolo is, again, reiterating the company's strategy to stem the problem. Twitter really needs to get  a handle on this problem  and quick.

During the third quarter, Twitter saw its average monthly active users (MAUs) grow 23% year-to-year to 284 million, adding only 13 million since Q2. Mobile MAUs represented 80% of the company's total MAUs.

Analysts had been expecting MAUs to reach at least 287 million. Its 5% quarter-to-quarter growth was down from  the 6% Twitter saw in Q2. In a recent report, MMK Partners had said that anything below 14 million net adds would be a miss.

On a conference call following the release, Costolo outlined the initiatives that Twitter has been putting in place in recent quarters, how he sees it playing out and saying that he knows that time is of the essence.

"You should think about the size of our total audience as a series of geometrically eccentric circles," he said. "At the core, you have our monthly active users. They are our most engaged users, contributing and consuming, the vast amount of great content on Twitter. Those contributions are the fuel that powers the entire system."

The next level is what Costolo calls the "logged-out audience," or "hundreds of millions of user who that come to Twitter every month but don't log in." The size of this audience is at least double the size of the core audience, he said.

Third and final circle are those who are reached through syndication and embedded tweets and timelines, across the Web and mobile. 

"We think about everything we do in the context of this set of geometrically eccentric circles and think it's useful for you to as well."

Twitter, said Costolo, has three main objectives it wants to accomplish:

1. Strengthen the core: "We have to continue to  grow our monthly active users and make Twitter an increasingly daily use case for them."

It will do this by improving the new user experience,  which it did by overhauling the sign-in process; providing rich media creation and consumption tools; and adding functionality to its direct messaging service.

2. Reduce barriers to consumption - "We will continue to innovation on better ways to organize our content, to deliver the right experiences at the right time, for all types of users: logged-in, logged-out and on syndicated partner properties."

3. Building new applications and services  - "Our announcement of Fabric a week ago at our development conference is the most recent initiative in this area and components of Fabric are already in use by tens of thousands of developers around the world, collectively reaching well over one billion iOS and Android users.

"We believe that Fabric can be the one SDK that any global app developer needs to embed in their application."

While Costolo says that he is "happy with the strategy and the quality of the work we're doing," he also said that, given the company's "significant aspirations," as well the opportunity in front of  it, Twitter will have to increase the pace of execution.

Considering that slowing user numbers are becoming a really big, long-term issue for Twitter, picking up the pace on monetizing those other types of users need to happen ASAP.

Q3 results

Timeline views reached 181 billion for the third quarter of 2014, an increase of 14% year-over-year. The 5% quarter to  quarter increase  may have also hurt Twitter, as it  had seen a 10% increase in the second quarter, though those numbers may have been inflated due to the World Cup.

Once again, almost all of Twitter's revenue came from advertising, which accounted for $320 million, a 109% year to year increase.  Mobile advertising revenue was 85% of total advertising revenue. Advertising revenue per thousand timeline views reached $1.77 in the third quarter of 2014, an increase of 83% year-over-year.

Data licensing, and other revenue, came to $41 million, an increase of 171% year-over-year. Of Twitter's total revenue, $121 million, or 34%, was international, an increase of 176% year-over-year.

GAAP net loss was $175 million for the quarter, compared to a net loss of $65 million in the same period last year.

Twitter is projecting revenue of between $440 and $450 million, with adjusted EBITDA in the range of $100 million to $105 million, for the next quarter. For the full year 2014, it expects to see revenue between $1.365 billion to $ 1.375 billion, with an adjusted EBITDA in the range of $260 million to $265 million.

Last quarter the company had projected revenue of between $330 and $340 million for Q3, and revenue between $1.310 billion to $1.330 billion for the full year.

(Image source: mashable.com)

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