Twitter gets more users but can’t seem to sell them advertisements

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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 Twitter’s problem has reversed. It’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 company’s bills, but it’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, that’s amazing. Twitter also said its daily users rose 11 percent from a year earlier, although Twitter doesn’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
company said.
Twitter surely benefited from a Trump bump, now that Twitter is the must-watch billboard of choice for the president. But it does seem Twitter’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 it’s
paying off.
Revenue is a different story. Sales grew 0.9 percent in the fourth quarter from a year earlier. That was by far Twitter’s worst growth in its history. Advertising revenue — which is about 90 percent of Twitter’s total — 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 isn’t good for business. But Twitter executives found 20 different ways to say the revenue hiccups in the fourth quarter won’t improve soon. In a letter to stockholders, Dorsey said advertising revenue growth would “continue to lag that of audience growth in 2017.” Even more worrying, he said some of Twitter’s types of advertising are performing poorly and might get the ax. Dorsey said the company has seen “increased competitive pressure” that has hurt one of the most common types of advertising formats on Twitter.
It’s clear 2017 won’t be a healthy growth year for Twitter. Dorsey told analysts Thursday that it would have to prove Twitter’s value to advertisers all over again. Twitter’s chief operating officer, Anthony Noto, didn’t answer an analyst question on a conference call about whether the company’s revenue would increase this year.
That’s not great for the company’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 Twitter’s Ebitda is semi-fictional because of the company’s dependence on paying people with stock. Including stock compensation, Twitter’s valuation jumps to 70 times RBC’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 — and that’s a big “if” — Twitter can hold onto its new users, then advertising may follow. That seems to be Twitter’s strategy. “We believe that accelerating growth in audience and engagement will help re-accelerate growth in our ads business over time,” 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 company’s striking losses, can lead into a 2018 of better revenue growth. That is an awful lot of wishful thinking for a company that hasn’t yet proved worthy of hope.
— Bloomberg

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal

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