Twitter's CFO issues warning on MAUs, stock sinks 10%

Steven Loeb · July 28, 2015 · Short URL:

Anthony Noto says it will be a "considerable period of time" before "sustained, meaningful growth"

Never forget that while investors can giveth, investors can just as easily taketh away.

After Twitter posted better than expected revenue and earnings per share in its second quarter earnings on Tuesday, not to mention beating analyst expectations when it came to user growth, things looks liked they were finally going well for the beleaguered company. 

Now, after comments from chief financial officer Anthony Noto in a conference call following that release, the company has given away all of its gains. and then some.

"As I noted throughout the quarter, MAUs in Q2 did not benefit from the same factors that benefited Q1. Specifically, we did not see organic growth, positive seasonality, or growth initatives seen in Q1," he said during the call.

"We're obviously not satisfied with these results. In the couple of months since assuming responsibility to lead marketing, we've done a deep dive into the issues driving MAUs and usage, and are developing a marketing strategy and plan to address this."

Despite enormous brand awareness, over 95% around the globe, Twitter has only been able to achieve less than 30% penetration in these markets.

"This low level penetration implies that we've only reached early adopters and technology enthusiasts, and we have not yet reached the next cohort of users, known as the mass market," said Noto.

"We believe the reason is that we have failed to do two critical things. First, we have not clearly communicated Twitter's unique value. That's reflected in everything we do, across product, content and marketing, and, as a result, non-users continue to ask, 'Why should I use Twitter?' Additionally, we have not delivered on meeting the new potential users expectations of of Twitter when they try the product. Simply said the product remains too difficult to use."  

So far, this is just a critique of the company and the product, and one that I'm sure that others have had. No harm, no foul. Then he went further. 

"We're working as rapidly as we can to put us in a position to launch an integrated marketing strategy and marketing campaign before the end of 2015," Noto said. "To be clear, however, we do not expect to see sustained, meaningful growth in MAUs, until we start to reach the mass market. We expect that will take a considerable period of time."

And, with that, Twitter's stock dropped like a stone. It is now down over 10% in after hours trading, after its stock had gone up over 5% in regular trading, and another 6% in after hours trading. Just like that, it was gone.

Ironically, this happened after Twitter, finally, saw some good news on the MAU front.

Average Monthly Active Users (MAUs) were 316 million for the second quarter, up 15% year-over-year, and compared to 308 million in the previous quarter. That beat the 310 million that analysts had been expecting. 

The larger-than-expected increase comes from the company's new practice of counting so-called SMS Fast Followers, which are users who people who sign up and access Twitter only through text message. Without those users, MAUs were 304 million for the second quarter, up 12% year-over-year, and compared to 302 million in the previous quarter. Mobile represented approximately 80% of total MAUs.

In addition to those comments, Dorsey was also asked by Mark Mahaney of RBC Capital how the search for the next Twitter CEO was going. Dorsey's answer was, pretty much, that they don't have anything to share right now.

"I know this is a trending topic around Twitter, the CEO search, but unfortunately we do not have an update to provide today. The search committee does feel the urgency of the search, but it is doing its work to make sure we arrive at the best answer. And we'll have updated when there's something meaningful to share."

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What is Twitter?

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, 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. 

Where did the idea for Twitter come from?

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.

How is Twitter built?

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.

How do you make money from Twitter?

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, 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 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.