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What Does Jack Dorsey Have in Store for Twitter?

Posted on Thursday, Oct 29th 2015

Social networking site Twitter (NYSE: TWTR) continues to fumble through its quarters. As quarterly metrics remain unimpressive, the market is beginning to lose patience. Last quarter, Twitter announced co-founder Jack Dorsey as its new permanent CEO. Now the market expects him to deliver a quick miracle.

Twitter’s Financials

Twitter’s third quarter revenues grew 58% over the year to $569 million, ahead of the Street’s forecast of $560 million. EPS of $0.10 was also ahead of the market’s projected earnings of $0.05 per share for the quarter. The increase in revenues was due to higher monetization. During the quarter, Twitter’s revenue generated per ad engagement fell 39%, but the total ad engagements increased 165% over the year.

For the quarter, advertising revenues grew 60% over the year to $513 million. Excluding the impact of currency movements, advertising revenues would have grown 67% over the year. Mobile remained a big piece of the pie with a contribution of 86% to advertising revenues. Data licensing and other revenues grew 37% to $56 million.

By region, revenues from the US grew 54% over the year to bring in $370 million. International revenues grew 65% to $199 million.

But it is the user metrics that are disappointing. During the quarter, average monthly active users grew 11% over the year to 320 million. Compared with the previous quarter, that number grew a paltry 4 million. Mobile monthly active users accounted for 80% of its user base. What is even more shocking is that in the current year, Twitter said that its user base in the US has remained constant.

Going forward, things don’t appear to be improving much. For the current quarter, Twitter projected revenues of $695 million-$710 million, significantly short of the Street’s forecast of $739.7 million.

Twitter’s Enhanced Offerings

Twitter’s weak user performance is not for lack of trying. During the last quarter, Twitter launched several new products to improve user engagement. Earlier this year, it had released Highlights, a feature that highlighted the best Tweets for a user. Last quarter, it released Highlights for Android.

Keeping in mind the other forms of digital media, last quarter it also released Music on Vine for both iOS and the Android platform. Music on Vine is a service that helps users discover and create music on the short-form video sharing service. Twitter had acquired Vine back in 2012 to add music and video to their capabilities. Today, Vine allows nearly 200 million monthly active users to watch six-second video clips. Now, they can also listen to music by selecting songs from a Featured Tracks section to add to their own feeds. It will be interesting to see how Music on Vine fares considering that their earlier attempt with Twitter Music had failed within a year of launch.

For the core messaging service, Twitter released Moments, a feature that helps users follow live events. A list of Moments will be displayed on Twitter that would cover big events including details about the events, conversation, news articles, autoplaying videos, Vines, and GIFs.

For advertisers, Twitter launched Brand Hub, an analytics tool for advertisers that will help them understand the demographics of their audiences, brand’s share of conversation and trends across Twitter in real time. Some of the metrics in Brand Hum include True Voice that helps track conversations in real time to gauge the popularity of brands and their competitors. They will also be able to share with the advertisers information on the age, gender, location, and income levels of the consumers who are Tweeting about them.

The market is understandably unhappy with Twitter’s performance. Post the announcement of their results, the stock fell nearly 12% to $27.65. It has recovered since and is trading at $30.87 with a market capitalization of $20.88 billion. It touched a 52-week high of $53.49 in April this year.

Its new CEO would need to take some serious measures to fix Twitter considering that he also runs Square. Earlier Jack had commented that Twitter had the capability to be “the most powerful microphone in the world”, and now it is time for him to deliver and drive Twitter’s user metrics upwards. He already appears to be taking charge. According to news reports, Jack is questioning some basic Twitter features. Under a project code-named 140 Plus, he is evaluating the option of increasing the 140-character limit on Tweets. He has also questioned the reverse chronological lineup that Twitter’s tweets appear in on a user’s page. The release of Moments is one such illustration of them rebounding on the reverse chronology. During the call, Jack spoke about the need to simplify and revisit all things Twitter.

“Moments is just the start of bolder simplification efforts you will see on Twitter. I’ve challenged our teams to look beyond assumptions about what makes Twitter the best play to share what’s happening. I’m confident our ideals will result in the service that’s far easier to understand and much more powerful.”

My observation is that Twitter’s value proposition is not mass market. I am interested in seeing if Jack Dorsey can convince me otherwise with killer use cases that broaden its appeal. Otherwise, while Twitter is a big media property, it’s potential to become substantially bigger is limited.

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