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Twitter Offers Investors Silver Linings But No Rainbow

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Twitter posts Q1 Loss and Higher Revenue
 
 

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Twitter Offers Investors Silver Linings But No Rainbow

In most industries, a company that was outperforming its targets in every area but one while delivering a respectable bottom line would be judged to be doing all right.

But in social media, there’s only measure that matters, and it’s not P&L. It’s user growth, and if you don’t have enough of it, it doesn’t matter how many other things you’re getting right. That’s the reality Twitter has been grappling with in its six months as a public company.

The portrait CEO Dick Costolo painted for investors on the company’s second-quarter earnings call Tuesday was substantially the same one he offered them three months earlier: Twitter’s advertising business is gathering steam faster than most analysts anticipated it would, but its user growth is alarmingly horizontal.

It may be unreasonable to expect an eight-year-old service to keep posting triple- or even double-digit percentage gains every quarter, but that’s basically what it has to do. The definition of what constitutes mass scale just keeps growing — faster than Twitter has been.

At its current size — 255 million monthly active users worldwide, 57 million in the U.S. — it would take Twitter three and a half years to reach the 500 billion total WhatsApp has already. Or compare it with Instagram, which has added 100 million users over the past 14 months — almost twice Twitter’s rate of growth. The Facebook-owned photo-sharing app is already bigger than Twitter on smartphones, and in another six months or so it will be be bigger overall, unless Costolo’s master plan for reinvigorating growth starts showing stronger results.

If and when that happens, Twitter will be ready. Its business model, long derided, has more than proven itself. Despite mounting skepticism toward claims that Twitter chatter drives TV viewership, advertisers seem to like the idea that they can retarget the same viewers who just watched their TV spots. An ad unit introduced this month to allow mobile app installations could soon be generating as much revenue for Twitter as the rest of its ad products put together, if it’s anything like as successful as Facebook’s version has been.

And there’s more unrealized upside where that came from. On the call, Costolo said private messaging is “a real opportunity for us” if Twitter can make it a little easier for its users to move back and forth between public Tweets and private DMs. This echoed sentiments expressed last week by his Facebook counterpart, Mark Zuckerberg, who said “private content” is that company’s next big frontier.

But for all this to mean anything, Twitter first needs to get bigger. Much bigger. Fast.

 

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