Twitter's Monthly User Growth Stalls, Ad Revenue Climbs

Mobile Accounted for 86% of Company's $641 Million in Ad Revenue

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Credit: Twitter/Marisa Allegra Williams

Twitter can't catch a break. After several quarters of audience struggles, in the fourth quarter of 2015 the company tried two big things to get more people to use its social network. It introduced a new feature, Moments, to make it easier for casual users to check out what's going on in the world. And it launched its first integrated marketing campaign -- including a TV ad -- to promote Moments and get more people to use Twitter. But neither was enough to offset the number of people who stopped using Twitter.

The fourth quarter "historically has been our seasonally worst quarter, and this Q4 was no exception to that," said Twitter CFO Anthony Noto during the company's earnings call on Wednesday. Twitter's execs chalked up that fourth-quarter weakness to the fact that there are fewer big events that lead people to go on Twitter, even though the fourth quarter was home to the World Series, the fall TV season and holidays like Thanksgiving and Christmas and New Year's Eve (including the College Football Playoff semi-finals).

In the fourth quarter of 2015, Twitter attracted 320 million people to check out its service each month on average. Even though that's about one-fifth of Facebook's monthly audience size, it's still a lot of people, 9% more than had checked out Twitter each month in the fourth quarter of 2014. Problem is, 320 million monthly active users is the same amount of people that checked out Twitter each month during the previous quarter. That is to say, the size of Twitter's audience didn't grow in the fourth quarter.

Even more problematically, when excluding the 15 million people who only use Twitter via text messaging to follow specific Twitter users without registering their own Twitter accounts, Twitter actually lost 2 million people from its monthly audience in the fourth quarter. The company also conceded that, while its ad campaign helped grow its monthly audience, it wasn't able to compensate for the number of people that organically stopped using Twitter in the fourth quarter. But those people that started using Twitter because of its ad campaign are less likely to stop using Twitter than those who organically start using Twitter, the company said.

On a brighter side, the size of Twitter's monthly audience, excluding the text-only crowd, returned to third-quarter levels in January 2016. And the number of people checking Twitter daily in the fourth quarter was the same number as in the third quarter, though the company didn't specific how many people that is.

The fact that Twitter's daily audience stayed flat while its monthly audience declined in the fourth quarter "is a clear signal that the users that we lost from a MAU perspective are not as high quality as our DAUs since that number was not impacted," Mr. Noto said.

On a much brighter side, Twitter's advertising business keeps growing. In the fourth quarter the company made $641 million from advertising, up 48% year-over-year and with mobile accounting for 86% of that sum. Twitter's overall revenue also grew at a 48% clip year-over-year to total $710.5 million in the fourth quarter, meeting analysts' estimates.

Most of Twitter's ad money came from ads shown on its own properties. In the fourth quarter ad revenue from ads shown on Twitter's site or apps totaled $556 million, up 31% year-over-year to account for 87% of its total ad revenue.

But Twitter also sells ads on other publishers' properties through its MoPub mobile ad exchange and TellApart automated ad-buying tool. That off-Twitter ad revenue totaled $85 million in the fourth quarter; the company didn't say how much of a year-over-year increase or decrease that was, but the figure was flat compared to the third quarter of 2015.

Twitter's advertising business has become increasingly video-centric since the company ran its first video ads in August 2014. According to Twitter, 33% of its managed accounts -- the brands that buy ads from Twitter's sales team directly -- have bought video ads. Quarter-over-quarter growth in Twitter's revenue from video ads "more than doubled that of total advertising revenue growth," the company said. That tortured description means that Twitter made something like 50% more money from video ads in the fourth quarter than the third quarter.

On the flip-side to that video ad growth, Twitter said that year-over-year growth in app install ads "slowed meaningfully" in the fourth quarter compared to the third quarter, but didn't specify whether that was a slowdown in the revenue from those ads or exactly how much of a slowdown it saw.

The impact of video on Twitter's ad business is more apparent when looking at how frequently people are interacting with its ads and how much money Twitter makes per interactive. The number of times people interacted with Twitter's ads in the fourth quarter increased by 153% year-over-year, and the company attributed that increase primarily to its video ads that play automatically. Even though Twitter only charges brands when an autoplay video ad plays for at least three seconds while 100% in view, each of those paid views cost less for advertisers than a click-to-play video ad. As a result the amount of money Twitter makes, on average, each time someone interacts with an ad dropped by 41% year-over-year.

Twitter said the number of ads it served in the fourth quarter was higher than a year ago, but didn't say by how much. "We've increased it because of demand," Mr. Noto said. To that end, Twitter now claims 130,000 active advertisers, 90% more than it had a year ago and 30% more than it had in the third quarter.

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