When Twitter first appeared, I didn’t get it. Even today, with the President tweeting every few minutes, I still don’t get it. It appears that ad tech doesn’t get it either.
In the fourth quarter, Twitter’s ad revenue was down, dropping from $641 million in 2015 to $638 million this year. Given the fad-heavy dialectic of social networks, this is worrying. Social networks are like Woody Allen’s sharks, they have to keep moving forward if they’re going to live. And Twitter isn’t moving forward. A whopping 89% of its advertising comes from mobile, the fastest growing form of ad media. If you can’t make money in mobile ads, there is an issue.
And it’s compounded by the fact that the company itself is warning that it will be forced to rely more on revenue other than advertising in the rest of the year. CFO Anthony Noto admitted on the conference call Feb. 9: “There are more large-scale players in digital advertising and social advertising budgets now than in prior years [and] that’s only increased throughout 2016. We’re focused on other streams that are not ad-driven and areas of low-hanging opportunity where we have audiences that aren’t being monetized.”
CEO Jack Dorsey called 2016 “especially challenging” on the same call. In an obvious reference to President Trump’s use of the social network, he added, “The whole world is watching Twitter. While we may not be meeting everyone’s growth expectations, there is one thing that continues to grow and outpace our fears — Twitter’s influence and impact.”
Had I been asking questions on that call, here is what I would have queried: “You rightfully focused on user growth in your presentation just now, but what good does it do to grow the audience if advertising continues to lag?”
As the 8-K financial filing put it, “As previously stated, we expect advertising revenue growth to continue to lag that of audience growth in 2017. Advertising revenue growth may be further impacted by escalating competition for digital ad spending and the re-evaluation of our revenue product feature portfolio, which could result in the de-emphasis of certain product features.”
Like Facebook, Twitter is looking more toward long-form video now, both for content and ads. But given the fact that Facebook has almost 10 times the revenue of Twitter, guess who’s probably going to prevail in that arena?
According to Twitter’s Feb. 9 financial filing, “Video is our largest revenue-generating ad format. During the fourth quarter, we improved the buying experience for video advertisers with the launch of reservation buying and the ability to buy video ads on a CPM basis. We also delivered dynamic ad insertion with 15- and 30-second ads across a wide range of live events, including NFL #TNF, the Presidential debates, the Melbourne Cup, and Bloomberg daily shows. Our live video ads are attractive to advertisers with sound on and our completion rates are over 95%. Our live video ads have been a key differentiator with advertisers, especially when packaged with our Twitter Amplify video product, and have contributed significantly to year-over-year growth in video-related advertising revenue.”
CEO Dorsey also stated in the Q4 call that 2017 would be a year of big “risks” for his company. And that’s interesting. As someone who has written about online media since the early ’90s, I tend to see ways forward for most companies. But this one? I’m not sure. When you read its financial filings, you get the impression its doing everything they can. But is it enough? What risks should they take? What risks can they take? There’s the conundrum.