Will video play saviour for Twitter's see-sawing ad revenues?
Twitter reports user growth in Q1'16 after a first ever drop in user base last quarter but revenue continues to be a worrying factor for the microblogging platform
Twitter joined the unenviable group of tech companies, which includes Alphabet and Yahoo in posting underwhelming Q1’16 results but the road ahead might be more worrying for the microblogging company.
Here are three key takeaways from the Q1 financials:
Advertising revenues drops significantly
Advertising revenues fell short of analyst expectations and with ad revenues contributing to more than 80 per cent to overall revenues, this further impacted the overall revenue of the company. Ad revenues in this quarter fell 17 per cent QoQ, thought this represented a 37 per cent increase YoY.
Twitter ended Q1 with ad revenues at just over $530 million for a total revenue of near to $595 million. This follows a trend that Twitter has been seeing over the last two years with Q1 revenues traditionally being low as compared to following quarters. Q1’14 ad revenues saw an increase of just 3 per cent QoQ, while Q1’15 ad revenues had dropped 10 per cent as compared to the previous quarter.
More worryingly, this quarter represented the lowest ad revenue growth (YoY) for the company in three years at just a 37 per cent increase YoY. In the earnings call, COO Adam Bain referred to the laggard ad revenues and said this was due to brand spending not increasing as much as expected. Twitter has already reduced its Q2 revenue estimates to between $590-$610 million; much lower than previous analyst estimates, which hints that it does not expect an easy Q2 either.
User growth back on track...for now
After reporting, much to investors dismay, its first ever drop in user base last quarter, growth is back on track in Q1 with the company reporting that it added 5 million new users to take its user base to 310 million worldwide. Monthly active users (MAU) saw an increase of 2 per cent QoQ and an increase of 3 per cent YoY. However, this growth has come from non US geographies as MAUs in the US saw 0 per cent increase. In the last three quarters (before Q1’16) US MAUs have seen growth of o per cent, 1 per cent and -2 per cent, which has worried investors and this trend, at least in the US, seems to be continuing. Twitter will need to step up the promised changes on its platform to make it more attractive to users before the slump becomes irreversible.
Could video prove the turnaround factor for Twitter?
Twitter has identified video and live streaming as the key components of its strategy going forward. In the Q1’16 earnings call, Bain mentioned that video ad units had been performing well in Q1, despite a slow acceptance of legacy, non-video ad properties. The focus on video ads in the last couple of quarters could also be a reason why Twitter posted stronger ad engagement figures, with engagement up by 17 per cent QoQ.
“In the quarter, video was strong, but that was partially offset by some softness that we saw in older legacy brand products. In terms of the opportunity ahead, we see a clear increase in our share of the brand advertising market, especially around video. Some of these new video opportunities will, we believe, grow budgets that we have access to,” he said.
Bain also mentioned that Twitter is working on new video tools around targeting, reach, frequency planning and verification, which will be launched later this year. Twitter has also entered into a deal to live stream NFL matches this year, which could be a significant step forward in its ambitions. The only worry is whether it has left it too late. Google is rumoured to be building its own live streaming service while Facebook has made no secret of its intentions regarding this space, especially with the recent launch of Facebook Live.
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