The growth of Twitter users is weak, and the attractiveness of the platform is reduced after the transition.
Editor’s note: This article is from WeChat public account “US Stocks Research Institute” ( ID: meigushe), author of the US Stock Research Institute.
On October 24th, Twitter released its third quarter earnings report for 2019, with revenue of $824 million, an increase of 8.7% year-on-year, and net profit of $36.522 million, compared to $789 million in the same period last year. We see an increase in Twitter revenue, but the net profit has fallen dramatically. Affected by the release of the earnings report, Twitter’s share price plummeted 17% as of press time.
This financial report also reflects two problems, one is a single revenue structure, and the other is slow user growth. The single structure of revenue leads to Twitter’s small revenue imagination, and too much reliance on advertising leads to too much risk, which has a negative impact on stock price performance. The slowdown in user growth indicates that Twitter’s appeal as a social platform is declining. As the user structure ages, if the new user growth is not obvious, the performance of Twitter will be worse in the future.
However, we speculate from Twitter’s income region structure and user distribution structure that Twitter has certain growth potential internationally. The international user base is significantly higher than the United States, and the contribution revenue is much less than the United States. But to expand and increase international income is not easy. In terms of the current volume of Twitter, it is not easy to want to carry out globalization. The US Stock Research Institute will continue to pay attention to the follow-up development of Twitter.
Revenues are not as good as expected, Monetization can achieve year-on-year growth
From a revenue perspective, Twitter’s revenue for the third quarter of 2019 was $824 million, an increase of 8.7% year-on-year. The market is expected to be 874 million US dollars, which shows that although revenue growth, but still below market expectations, this is one of the important reasons for the stock price decline.
From the perspective of revenue structure, Twitter is mainly two revenues. One is advertising revenue, which is about $702 million, up 8% year-on-year, slightly lower than the growth rate of revenue. The other is data licensing and other revenues, totaling $121 million, up 12% year-on-year, and growing faster than advertising revenue. We see advertising revenue accounting for 85.2%, dataIt can account for 14.7% of other income. It can be seen that Twitter relies heavily on advertising revenue, and such a revenue structure is obviously unhealthy.
In terms of revenue area, US revenue totaled US$465 million, a year-on-year increase of 10%. International revenues totaled $358 million, an increase of 7% year-on-year. US income is higher than international income, and the growth rate is higher than international income. This reflects Twitter’s lack of international business.
In terms of number of users, Twitter’s average monetizable daily active usage (mDAU) in the third quarter was 145 million, up 17% year-on-year, compared with 124 million in the same period last year and 139 million in the previous quarter. Twitter’s monetizable daily activity is on the rise. In terms of user areas, the average mDAU in the United States was 30 million, compared with 26 million in the same period last year and 29 million in the previous quarter. The international average mDAU was 115 million, compared with 98 million in the same period last year and 110 million in the previous quarter.
From the financial report, we can see that Twitter has great potential for internationalization. Specifically, in terms of revenue, US revenue totaled US$465 million, a year-on-year increase of 10%. International revenues totaled $358 million, an increase of 7% year-on-year. In terms of users, the country’s average mDAU is 30 million, and the international average mDAU is 115 million. We see that the amount of monetizable users in Twitter is lower, but the revenue is bigger and the growth rate is more obvious. This shows that there is a large revenue potential in the world.
From a profit perspective, Twitter’s net profit for the third quarter was $36.5 million, unchanged after adjustment. Net profit for the same period last year was $789 million. Excluding the release of a $683 million deferred income tax asset assessment reserve, the adjusted net profit was $106 million, the adjusted net profit margin was 14%, and the adjusted diluted earnings per share was $0.14.
There are many serious reasons for this decline in profits, mainly for two major reasons. One is the decline in revenue, especially advertising revenue. Twitter said in a letter to shareholders, “In the third quarter, we found errors that mainly affected our traditional mobile application promotion (MAP) products and took remedial measures. This affects our ability to target ads and share data with measurement and advertising partners. We also found that some personalization and data settings did not work as we expected. We believe that, in general, these issues make the third quarter Revenue decreased by at least 3 percentage points or more year-on-year.”
Another big reason is the rise in costs. Twitter spending increased 17% in the third quarter to $780 million, in part due to recruitment and investment in marketing, research and development.
Overall, we see that although Twitter’s revenue and user volume have increased, overall, it is still not as expected. Moreover, the sharp drop in profits caused the market to lose confidence in Twitter, causing the stock price to plummet. Although Twitter has been revived after reform, the fundamental problem has not been solved. How to realize the campDiversification, how to promote the steady development of profits, these will be the problems faced by Twitter, the US stock research society will continue to pay attention to the follow-up development of the event.
The revenue structure is solely dependent on advertising,User growth rate declines to shrink
Twitter has always faced a single problem of revenue structure. This problem has been plagued by Twitter and has not been resolved so far, which will lead to the continued increase in Twitter’s revenue risk. And as competitors grow, Twitter’s competitiveness is reduced. In the future, once advertising revenues are reduced, Twitter’s overall revenue and even operations will face problems.
(1) Advertising revenue growth is declining and competitors are increasing
Twitter’s single revenue structure problem is already very serious. The financial report showed that advertising revenue in the third quarter was $702 million, accounting for $8.52 billion in total revenue. In terms of the diversity of revenues, Twitter’s revenue structure is too singular, which puts tremendous pressure on advertising revenue. It also makes Twitter’s advertising business more prone to problems. Not long ago, Twitter admitted that users’ data may be used for advertising and apologize for security breaches.
And comparing past advertising revenues, we found that Twitter’s advertising revenues are on a downward trend. Twitter’s second-quarter earnings report showed that advertising revenue totaled $727 million, an increase of 21% year-on-year. Comparing the advertising revenue in the third quarter, we found that the advertising revenue decreased, and the growth rate of the chain decreased. This suggests that its advertising revenue may have encountered bottlenecks and its future growth potential is getting smaller.
One of the reasons for the potential to become smaller may be the rise of competitors. The pressure from major competitors makes the advertising business more risky. At present, advertisers have a large number of advertising channels. Although Twitter is currently favored by advertisers, it still faces many opponents.
The first is social platforms in the traditional sense, such as Facebook, Instagram, Snapchat, etc. These social platforms are popular with advertisers, especially Instagram and Snapchat, which have been optimizing their business in recent years to promote advertising. Growing. Another type of rival is a short video platform like tiktok. In recent years, the rapid development of short video has attracted a large number of advertisers, which will be a big challenge for Twitter.
(2) Twitter users are weak, and the platform is attractive after the transitionLower
The decline in advertising growth is also related to limited user growth. Users are the basis of advertising, but the growth of Twitter users has not been obvious in recent years. Since 2015, Twitter has faced a user growth crisis. According to the book, since 2015, the monthly user data disclosed by Twitter has been maintained at 300 million, and the cumulative growth of 30 million monthly users in 4 years. The previous year’s growth of more than 30% was cut to 0. What’s even worse in 15-17 is that Twitter users have continued to fall, with users falling by more than 40% year-on-year at the peak of September-17-17.
Since the second quarter of this year, Twitter has renounced the release of daily livelihood and instead replaced it with monetizable users. Although Twitter indicates that it can monetize user growth, from the historical performance of Twitter, the actual number of new users may not be obvious, and it can be known from the decline in advertising revenue, monetizable user growth for advertising Growth seems to be of little use.
The small user growth space may be related to the transformation of Twitter. In the past, Twitter was a social platform, but now it is more political. From the recent performance of Twitter, it can be known that although this transformation has attracted the participation of other users to a certain extent, it has made the growth potential of users smaller. After all, the user space of news applications is not comparable to social platforms.
But since the Twitter reform, it has been committed to community management. In the earnings report, CEO Dorsey said that we continue to make progress in content health and improve our ability to proactively identify and remove inappropriate content. More than 50% of the abusive content was deleted in the third quarter. The construction of a healthy community is important for user growth and daily use, which may be beneficial to Twitter’s future user growth.
International digital advertising is expected to continue to decline,short video new advertising form impact
In the previous analysis, we mainly analyzed the decline in advertising revenue due to internal factors such as the slowdown in user growth. In fact, external influences are also very important. From the financial data and future expectations of other major companies in recent years, we have noticed that the global advertising industry has already ushered in a cold winter. And with the rise of new forms of advertising, traditional platforms such as future snaps and Twitter will be affected.
(1)Snap and other companies are bearish on the future, advertising revenue “winter has arrived”
Many companies, including snap, are not optimistic about future revenue performance. Snap recently released third-quarter earnings, revenue, user growth and other data exceeded market expectations, but the stock price is still falling. According to Sina Finance, due to Snap’s fourth-quarter revenue outlook, the company’s fourth-quarter revenue was lower than analysts’ expectations and led to a decline in stock prices.
There is no such thing as a domestic company. According to reports, in the first half of this year, Tencent’s advertising business revenue dropped rapidly from 2018H1 to 40.57%, to 20.11%. Weibo also dropped from the year-on-year growth rate of 69.54% to 9.91%, while the iQiyi and Baidu military both fell, with a decrease of 8.62% and 3.50% respectively.
As can be seen from the above analysis, the advertising business of companies including Weibo, snap, and Twitter all showed a downward trend, and they are not optimistic about the future.
It can be seen that the advertising business in China and the whole world has entered the cold winter. According to the data compiled by digital marketing industry media Fmarketing, many Internet traffic giants have not performed satisfactorily in advertising revenue since 2019, and many companies have reversed their advertising performance. According to the latest CCTV market research (CTR) advertiser survey, only 33% of advertisers plan to increase their budget in 2019, which is the lowest level in the past 10 years. Correspondingly, the proportion of advertisers who are prepared to maintain and reduce their budgets is the second highest in 10 years.
The impact of the advertising business into the winter and the global economic environment is inseparable. Beginning in 2019, Citibank predicted that as the macro environment declines, it may cause advertisers to cut spending. From the above company’s performance and investigation report, it can be seen that this is indeed the case. The International Monetary Fund recently lowered its forecast for global economic growth this year to the lowest level in a decade. It is expected that the world economic growth rate will be 3% this year. 3.4%. This situation may continue.
After a short time, Facebook will also advertise. As a social platform, Facebook relies heavily on advertising, and may also face the capital market’s optimism like snap and Twitter.
(2) The rise of new forms of advertising in the short video era
Also note that the rise of short videos threatens traditional social platforms like Twitter. We see that tiktok is setting off a frenzy overseas. According to data from the international application market research institute SensorTower, TikTok has occupied the top three of the US Apple App Stores in September this year. At present, tiktok has more than 500 million active users and 1 billion downloads. It can be seen that tiktok is popular around the world.
Therefore tiktok quickly launched advertising business. Related data shows that tiktokQ1 incomeThe year-on-year growth was more than 4 times, and the annual business revenue is expected to increase by 1.65 times. In June of this year, the global purchase of Vibrato and overseas version of TikTok in the Apple and Android app stores reached US$10.8 million, a record high, and the cumulative purchase exceeded the US$100 million mark.
It can be seen that tiktok and the aforementioned traditional social platforms are on the top of the advertising business. In fact, it is precisely because of the rise of short video that the advertising revenue is further diverted. After all, the volume of the advertising market has not expanded much in recent years due to the impact of the winter. Short video is also one of the main reasons for the decline in Twitter advertising revenue.
From the above analysis, we can see that Twitter’s earnings report is not good. Mainly due to the sharp drop in profits, the capital market lost confidence in it, which led to a sharp fall in stock prices. From this we can also see that its revenue structure is single, user growth slows down and many other issues. In fact, advertising revenue is also related to external factors, the entire international advertising environment is showing a downward trend, coupled with the impact of short video. After Twitter has returned to life, it still faces a more serious test. The US stock research society will continue to pay attention to his subsequent development.