At this point last year, Twitter was a company that had a hard time attracting new people to surf and tweet, but it was quite skilled at generating ad dollars from its die-hard users.
Now Twitterâ€™s problem has reversed. Itâ€™s still a mess of a company, but in a fresh way. People are using Twitter more, but advertisers are jumping ship. In theory, more Twitter users will lure back the advertisers that pay the companyâ€™s bills, but itâ€™s hard to keep the faith in Twitter, which is innovative in being
On the plus side, Twitter is finally showing some traction in attracting new users and keeping them longer. The number of people who use Twitter monthly rose nearly 5 percent in the fourth quarter from a year ago. For Twitter, thatâ€™s amazing. Twitter also said its daily users rose 11 percent from a year earlier, although Twitter doesnâ€™t disclose specific numbers of daily users like its peers Facebook Inc. and Snap Inc. do. People also spent
more time hanging out on Twitter, the
Twitter surely benefited from a Trump bump, now that Twitter is the must-watch billboard of choice for the president. But it does seem Twitterâ€™s efforts to better notify smartphone users of interesting activity on Twitter, and to show more videos of live sports or news events, have also contributed to the increase in Twitter users. User growth was a priority of CEO Jack Dorsey, and itâ€™s
Revenue is a different story. Sales grew 0.9 percent in the fourth quarter from a year earlier. That was by far Twitterâ€™s worst growth in its history. Advertising revenue â€” which is about 90 percent of Twitterâ€™s total â€” fell for the first time ever. To be fair, Twitter fired 9 percent of its staff in recent months and reorganized its advertising sales team. That kind of disruption isnâ€™t good for business. But Twitter executives found 20 different ways to say the revenue hiccups in the fourth quarter wonâ€™t improve soon. In a letter to stockholders, Dorsey said advertising revenue growth would â€œcontinue to lag that of audience growth in 2017.â€ Even more worrying, he said some of Twitterâ€™s types of advertising are performing poorly and might get the ax. Dorsey said the company has seen â€œincreased competitive pressureâ€ that has hurt one of the most common types of advertising formats on Twitter.
Itâ€™s clear 2017 wonâ€™t be a healthy growth year for Twitter. Dorsey told analysts Thursday that it would have to prove Twitterâ€™s value to advertisers all over again. Twitterâ€™s chief operating officer, Anthony Noto, didnâ€™t answer an analyst question on a conference call about whether the companyâ€™s revenue would increase this year.
Thatâ€™s not great for the companyâ€™s stockholders, who are already holding a pricey investment. Before Thursday, Twitter was valued at 13.5 times its expected earnings before interest, taxes, depreciation and amortization for 2017, while Facebook is at 15.5, according to Bloomberg data. But Twitterâ€™s Ebitda is semi-fictional because of the companyâ€™s dependence on paying people with stock. Including stock compensation, Twitterâ€™s valuation jumps to 70 times RBCâ€™s estimate for 2017 Ebitda. (Twitter did say Thursday that it planned to slash stock compensation expenses by 15 to 20 percent this year.)
There is light at the end of the tunnel. Maybe. If â€” and thatâ€™s a big â€œifâ€ â€” Twitter can hold onto its new users, then advertising may follow. That seems to be Twitterâ€™s strategy. â€œWe believe that accelerating growth in audience and engagement will help re-accelerate growth in our ads business over time,â€ Twitter said in its letter to investors in October.
It is a leap of faith, however. The company and its investors have to hope a year devoted to attracting new users for Twitter, and to narrowing the companyâ€™s striking losses, can lead into a 2018 of better revenue growth. That is an awful lot of wishful thinking for a company that hasnâ€™t yet proved worthy of hope.
Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal