Twitter was absolutely killed on Tuesday, after it missed expectations with $436 million in revenue, while analysts wanted to see $457 million.
So what happened? According to Twitter CFO Anthony Noto, it had to do with changes to Twitter's overall advertising strategy.
"From a product perspective, year-over-year growth was primarily driven by newer products, specifically video ads and website cards. However, while growth was strong, some of our direct response products fell short of our high expectations for Q1," he said in a conference call.
"Two factors impacted the results: first, some advertisers limited spending at higher levels of scale because the bids required to win incremental auctions were higher than they were willing to pay, which limited additional spending. Second, we've improved the quality of leads for direct response advertisers, using our website cards, by raising the bar on what constitutes an engagement or click."
This means that it will give "significantly increased value to advertisers because we're delivering users further down the marketing funnel."
This means a lower click through rate, and less revenue, for Twitter in the short run, but ultimately the company believes that giving advertisers higher return on investment will make up for that.
"As a result of these two factors, revenue in the first quarter came in 2% below the midpoint of our previously forecasted range," said Noto, and Twitter doesn't expect to see revenue pick up again until the second half of this year.
Noto also made sure to clearly state that Twitter is "still in the very early stages of development for direct response products," since most haven't even been available for a whole year.
"We're very encourages by the growth we've experienced thus far, but as often is the case with new products, we have a great deal of iterating and fine tuning to do as we scale in order to maximize the effctiveness of these products in our complex marketplaces."
In addition to its earnings, Twitter announced today that it has entered into a definitive agreement to acquire TellApart, a marketing technology company providing retailers and e-commerce advertisers with unique cross-device retargeting capabilities through dynamic product ads and email marketing.
This purchase is "an important step" in improving the new products.
"The acquisition of TellApart provides immediate, meaningul benefits across targeting, measurement and creatives, for direct response advertisers in the retail vertical category, and we will extend these capabilities internationally and to other verticals over time."
Q1 2015 results
Though revenue was hit hard, the company did, however, report non-GAAP EPS of $0.07, beating the $0.04 expected by analysts. So at least there's that.
Twitter also continued to struggled in the one area that has been giving it trouble in recent quarters: user growth.
In the first quarter, Average Monthly Active Users (MAUs) were 302 million, up only 18% year-over-year and compared to 288 million in the previous quarter. Average Mobile MAUs represented approximately 80% of total MAUs.
Once again, almost all of Twitter's revenue came from advertising, which accounted for $388 million, an increase of 72% year-to-year. It would have been 78% if not for foreign exchange rates. Mobile advertising revenue was 89% of total advertising revenue.
Data licensing, and other revenue, came to $48 million, an increase of 95% year-over-year. Of Twitter's total revenue, $146million, or 34%, was international, an increase of 109% year-over-year.
Twitter now is projecting revenue of between $470 and $485 million, with adjusted EBITDA in the range of $97 million to $102 million, for the next quarter. For the full year 2015, it expects to see revenue between $2.170 billion to $2.270 billion, down from $2.3 billion to $2.35 billion last quarter,, with an adjusted EBITDA in the range of $510 million to $535 million, down from $550 million to $575 million.
In addition to its earnings, Twitter also made two announcements today "aimed at strengthening its direct response capabilities."
First, it entered into a definitive agreement to acquire TellApart, a marketing technology company providing retailers and e-commerce advertisers with unique cross-device retargeting capabilities through dynamic product ads and email marketing.
Second, it announced a partnership with Google's DoubleClick platform to improve advertising performance measurement and attribution for Twitter direct response marketers.
As part of the partnership, Twitter will also make its inventory available through the DoubleClick Bid Manager, making it easier for clients who prefer to centralize their buying through DBM to create and manage campaigns on Twitter.
Shares of Twitter went into freefall on Tuesday, dropping over 18% in regular trading after its first-quarter earnings reportedly leaked, showing the company badly missing expectations with $436 million in revenue, while analysts wanted to see $457 million.
Sadly for Twitter, those reports turned out to be accurate.
The company did, however, reported non-GAAP EPS of $0.07, beating the $0.04 expected by analysts. So at least there's that.
"While we exceeded our EBITDA target for the first quarter, revenue growth fell slightly short of our expectations due to lower-than-expected contribution from some of our newer direct response products," Dick Costolo, CEO of Twitter, said in a statement.
"It is still early days for these products, and we have a strong pipeline that we believe will drive increased value for direct response advertisers in the future. We remain confident in our strategy and in Twitter's long-term opportunity, and our focus remains on creating sustainable shareholder value by executing against our three priorities: strengthening the core, reducing barriers to consumption and delivering new apps and services."
Twitter also continued to struggled in the one area that has been giving it trouble in recent quarters: user growth.
In the first quarter, Average Monthly Active Users (MAUs) were 302 million, up only 18% year-over-year and compared to 288 million in the previous quarter. Average Mobile MAUs represented approximately 80% of total MAUs.
Once again, almost all of Twitter's revenue came from advertising, which accounted for $388 million, an increase of 72% year-to-year. It would have been 78% if not for foreign exchange rates. Mobile advertising revenue was 89% of total advertising revenue.
Data licensing, and other revenue, came to $48 million, an increase of 95% year-over-year. Of Twitter's total revenue, $146million, or 34%, was international, an increase of 109% year-over-year.
Twitter now is projecting revenue of between $470 and $485 million, with adjusted EBITDA in the range of $97 million to $102 million, for the next quarter. For the full year 2015, it expects to see revenue between $2.170 billion to $2.270 billion, down from $2.3 billion to $2.35 billion last quarter,, with an adjusted EBITDA in the range of $510 million to $535 million, down from $550 million to $575 million.
(Image source: ww2.kqed.org)
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Twitter is an online information network that allows anyone with an account to post 140 character messages, called tweets. It is free to sign up. Users then follow other accounts which they are interested in, and view the tweets of everyone they follow in their "timeline." Most Twitter accounts are public, where one does not need to approve a request to follow, or need to follow back. This makes Twitter a powerful "one to many" broadcast platform where individuals, companies or organizations can reach millions of followers with a single message. Twitter is accessible from Twitter.com, our mobile website, SMS, our mobile apps for iPhone, Android, Blackberry, our iPad application, or 3rd party clients built by outside developers using our API. Twitter accounts can also be private, where the owner must approve follower requests.
Twitter started as an internal project within the podcasting company Odeo. Jack Dorsey, and engineer, had long been interested in status updates. Jack developed the idea, along with Biz Stone, and the first prototype was built in two weeks in March 2006 and launched publicly in August of 2006. The service grew popular very quickly and it soon made sense for Twitter to move outside of Odea. In May 2007, Twitter Inc was founded.
Our engineering team works with a web application framework called Ruby on Rails. We all work on Apple computers except for testing purposes.
We built Twitter using Ruby on Rails because it allows us to work quickly and easily--our team likes to deploy features and changes multiple times per day. Rails provides skeleton code frameworks so we don't have to re-invent the wheel every time we want to add something simple like a sign in form or a picture upload feature.
There are a few ways that Twitter makes money. We have licensing deals in place with Google, Yahoo!, and Microsoft's Bing to give them access to the "firehose" - a stream of tweets so that they can more easily incorporate those tweets into their search results.
In Summer 2010, we launched our Promoted Tweets product. Promoted Tweets are a special kind of tweet which appear at the top of search results within Twitter.com, if a company has bid on that keyword. Unlike search results in search engines, Promoted Tweets are normal tweets from a business, so they are as interactive as any other tweet - you can @reply, favorite or retweet a Promoted Tweet.
At the same time, we launched Promoted Trends, where companies can place a trend (clearly marked Promoted) within Twitter's Trending Topics. These are especially effective for upcoming launches, like a movie or album release.
Lastly, we started a Twitter account called @earlybird where we partner with other companies to provide users with a special, short-term deal. For example, we partnered with Virgin America for a special day of fares on Virginamerica.com that were only accessible through the link in the @earlybird tweet.
What's next for Twitter?
We continue to focus on building a product that provides value for users.
We're building Twitter, Inc into a successful, revenue-generating company that attracts world-class talent with an inspiring culture and attitude towards doing business.
