Twitter Adds Users but Misses Revenue Predictions

Twitter IPO

Image taken during Twitter’s IPO

Twitter disappointed investors Tuesday afternoon after posting mixed quarterly results.  The social media company also shows poor sales guidance, earning $602 million as opposed to Wall Street’s expectations of $607 million.  Despite the negative news, Twitter did have some bright spots.  They beat Wall Street’s prediction of 10 cents per share by hitting the 13 cents per share mark, which is up from just seven cents in the second quarter of last year.  In addition, Twitter added a million more monthly users than expected for a total of 313 million monthly users worldwide.  

Overall, however, investors were not pleased.  This reaction manifested itself in a ten percent drop in their share price after hours.  While Twitter’s own third quarter predictions don’t look much better, the company remains optimistic mostly due to the addition of monthly users.  Twitter CFO Anthony Noto told CNBC that audience growth has stabilized because of positive product changes.  Ultimately, more users will mean more advertising money for the social media outlet.  However, advertising demand is not as high as they would have hoped.

The company has no one to blame but themselves for the lack of advertising on their site.  They say that in order to “unlock” advertising budgets, they will need to “launch additional features and functionality over the next few quarters including accurate audience verification, reserved buying, and reach and frequency planning and purchasing.”  While it seems like they know what they need to do, in all honesty, they should have taken care of this already.  Twitter appears to constantly lag behind Facebook and Instagram in this regard.  Until Twitter provides a better platform for advertisers, they will continue to witness a lack in demand from companies who will get more bang for their buck by advertising on other sites.

A shift in the advertising industry is occurring.  Companies are moving towards video ads to promote their products and services.  Twitter will likely continue to see their shares trade below $20 until they figure out a way to accommodate the shift in advertising style.  

The company is currently relying on their live streaming services to pull in revenue.  They’ve signed deals with the NBA and CBS to stream certain content live.  While this a step in the right direction, video ads still remain the elephant in the room.  The fact that they also pale in comparison to Facebook and Instagram’s monthly user numbers certainly doesn’t help matters in the ad department.  

Analysts and investors are also skeptical about Twitter’s CEO Jack Dorsey.  Dorsey currently runs not only Twitter but Square as well, and investors are fearful he can’t handle both projects.  With this skepticism in the air, Twitter is becoming a potential takeover target.  Correcting their advertising platform policy, on their mobile site especially, may placate investors.  Hopefully for Twitter, this will be somewhat of a wake-up call.

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