Economy First Look

After sluggish fourth quarter, how can Twitter pick up the pace?

To grow its revenue, the company will need to find a way to bring in more ad dollars, as it competes with increasingly visual platforms.

Jack Dorsey, chief executive officer of Twitter and CEO of Square, goes for a walk on the first day of the annual Allen and Co. media conference in Sun Valley, Idaho, July 8, 2015.
Mike Blake/Reuters/ File
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In the past year, Twitter has become the preferred mode of communication for the US President. But not even the leader of the free world could boost the company’s bottom line.

“The Trump effect was zero,” analyst Michael Pachter told Reuters after Twitter issued a disappointing quarterly report Thursday morning. The company’s revenue grew just 1 percent in the fourth quarter, to $717.2 million, marking the slowest growth for the company since it went public in 2013.

Looking ahead to the first quarter, Twitter forecast earnings before taxes of $75 million to $95 million, whereas analysts had expected more than $190 million.

This slow growth contrasts with other social networks, especially Facebook and Snapchat, as Twitter struggles to attract more users. The company's future success or failure could depend on how it competes with these firms for advertising dollars.

In its letter to investors, the company warned that revenue could now “be further impacted by escalating competition for digital ad spending.”

Ad revenue forms the bulk of income for many internet firms; one former Google executive described that company to Bloomberg as “an advertising company with a bunch of hobbies.” $638 million of Twitter’s Q4 revenue came from online ads.

But that number marked a slight decline from previous quarters, making analysts wonder how the company can bring advertisers back.

"I don't think they can grow revenue without showing user growth," Mr. Pachter told Reuters. "They have to convince advertisers that they will reach an expanding audience, or they will have trouble competing for new revenue dollars."

But Twitter’s familiar, 140-character format may not be what internet users want in 2017.

"It's still a social platform founded in text," Chris Innes, the chief monetization officer of the advertising software company SteelHouse, told AdWeek on Thursday.

But social media members are increasingly sharing and viewing videos, a trend that some of Twitter’s competitors have already capitalized on. Communicating in pictures or short videos "is even more information dense, and even more economical," Forbes contributor Adam Hartung wrote last May.

"While you may not imagine using pictures to replace language, the fact is it is happening with increasing frequency, and lots of people are making the switch. Thus it is a trend that will affect how we do many things for many years into the future," he wrote, highlighting Snapchat's success getting ahead of the trend.

It's a trend Twitter could go after, in hopes of bringing in more ad dollars. 

"Despite disappointing numbers, many think Twitter's reign is far from over, and plans to introduce live video with highly-sought-after advertising blocks have piqued the interest of big name brands like Ford and the NFL," The Christian Science Monitor reported in September. The company has continued to integrate Periscope, its live-streaming app, as well.

The company could go further down this road in coming months. Its report also hinted at a “re-evaluation of its revenue product feature portfolio, which could result in the de-emphasis of certain product features.”

It will be up to advertisers – and users – to decide whether this “de-emphasis” is an improvement.

This report contains material from Reuters and the Associated Press.

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