Twitter Gains 2m Users But Loses $457m
Although Twittter's current significance in electoral politics is unquestioned, the social media platform's business model is under critical scrutiny.
Shares in Twitter have slumped after the tech company suffered a decline in advertising income, despite a rise in user numbers as Donald Trump’s high-profile tweeting helped to advertise the platform’s influence.
Jack Dorsey, chief executive and co-founder, hailed the growing “impact and influence” of Twitter, saying the US president had “boosted the power” of the service.
But investors took fright as the loss-making company conceded that its financial growth was lagging behind its increasing popularity among users and would continue to do so in the near future.
The San Francisco-based company reported annual revenues up 14% on last year to $2.5bn (£2bn). Monthly active users climbed from 317 million to 319 million in the final quarter of last year.
While Twitter trumpeted an increase in users and time spent on the site, revenues increased by less than analysts had forecast.
However, the tech company is still making sizeable losses, falling $457m into the red during 2016 despite cutting 9% of its workforce, or about 350 people. Its shares fell by more than 11% to $16.54 in early trading on Wall Street after the disappointing set of figures were revealed.
Twitter has now racked up losses of almost $2.8bn since it floated on the stock market three years ago, at $26 a share, and the latest figures deal a blow to the company’s plan to turn a profit by the end of 2017.
One figure that will give cause for concern among investors is a fall in advertising revenue in the fourth quarter, down to $638m from $641m in the same period of last year. This was largely because of a slump in revenues in the US, which wiped out gains in Twitter’s international markets.
The company had reported an increase in advertising revenue in the first three quarters of the year, before the trend reversed in the final three months. This was largely down to a 5% slump in revenues in the US to $440m, a fall that wiped out a 12% rise to $277m in its international markets.
“We haven’t made the progress we anticipated over the last year in some direct response ad formats,” Twitter said in a stock market filing, admitting that its “promoted tweet” advertising had been hit by competition.
And the company offered a gloomy picture of the trajectory for advertising income, warning that “revenue growth will continue to lag audience growth in 2017 and could now be further impacted by escalating competition for digital ad spending”.
Dorsey said he believed weaker advertising income was partly down to a delayed impact from 2015, when user numbers dipped, limiting the amount advertisers were prepared to spend. The number of monthly users had picked up slightly since then, rising 3% in 2016 compared with 1% in 2015, and Dorsey said he believed advertising revenue would catch up.
“We do believe that it’s a matter of when, not if,” he said, admitting that increasing revenue would take time.
Dorsey said Twitter would scrap less lucrative initiatives and focus on “putting our resources behind those products that have the greatest chance of success”, such as live video-streaming.
In an apparent curtailing of its ambitions, the company referred to “progress towards profitability in 2017”, having talked earlier in the financial year of “driving toward profitability in 2017”. But there were signs of improvement ahead as cash flow increased to $440m from $5m in 2015. The company is also making progress in the amount it spends on paying staff in stock, which has fallen to 24% of revenue and is slated to fall to 20% in 2017.
The company also promised to step up efforts to combat online abuse on the social media platform. “Making Twitter safer is a primary focus in 2017, and we are approaching safety with a greater sense of urgency,” it said. “We’ve rolled out a number of product changes already in the first quarter, and this focus will continue until we’ve made a significant impact.”
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