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The Trouble With Twitter

By Andrew Galbreath
Published on: 14:09 PST, Apr 26, 2016

Twitter posted its first quarter earnings on Tuesday, but one burning question still remains: can the social media giant attract new users?

Twitter Inc. reported a profit of 15 cents per share and revenue of $595 million, beating Wall Street’s estimate of profits of 10 cents per share, but failing to reach its expected revenue of $608 million for the quarter. The company also lowered its second quarter expectations significantly, targeting $590 million to $610 million this quarter, which is much lower than analyst’s previous estimates of $678 million. Its stock is also down by 11 percent.

Still, despite not meeting revenue goals, earnings are not Twitter’s real problem. The microblogging company posted $2.22 billion in revenue for 2015, or a huge 58.09 percent earnings growth from the previous year. But Twitter’s number of monthly active users (MAUs) has been stuck at around 300 million for the last year.

Twitter notably added no new users whatsoever in the fourth quarter of 2015, as reported by Bloomberg. In fact, for the first time in its history its core users actually shrank, from 307 million to 305 million. The fears of advertisers and investors seems to have been confirmed that the platform may have hit a growth wall.

Tech news website re/code reported that Twitter added 5 million users this quarter, bringing its total active user base to 310 million users, up from 305 million monthly from the last quarter of 2015. While this is good news, it won’t stop the larger trend of annualized user growth being stuck under 10 percent. Twitter knows to remain relevant in the highly competitive marketplace of social media, it has to not only keep users engaged, but find new ones.

Business Insider noted some of the steps the company has taken to solve this seemingly systemic problem. One method is reaching out to an audience wider than its typical base of celebrities, journalists, and politicians.

“Twitter has talked about its reach in other ways, such as the number of people who see embedded tweets on other web sites, and it’s exploring all kinds of new opportunities such as live streaming selected NFL football games. But to remain relevant in the crowded social media space, Twitter needs to prove that it can grab new users, as Facebook and Snapchat have been doing.”

Existing markets for social media are stretched thin with the rise of many new sites like Pinterest and SnapChat, causing more and more competition for growth. Advertisers do not see Twitter as particularly valuable when compared to other social media outlets, and Wall Street investors worry about the future of Twitter when users seem to prefer sites and apps like SnapChat, Pinterest, Facebook, and Instagram.

Morgan Stanley analysts were hard on Twitter in a report earlier this month where they lowered their forecasts for the media company’s stock price from $18 to $16, and projected a slowing in revenue, earnings and most importantly, new users.

“Engagement and new user trends remain troubling,” the analyst team said. “We see fewer users and less time per user holding back Twitter’s platform monetization — putting a limit on ad impression growth and holding back the pace at which advertisers increase their share of ad budgets toward the (shrinking) platform.”

They also lowered their 2017 revenue forecast by 6 percent to $3.23 billion. The report noted that new users this year are probably due to the deal with the NFL, as well as the U.S. presidential election and the Olympic games, and raised concerns about the ability of these events to retain users.

Twitter has also been reshuffling its positions in recent years. In October, they appointed co-founder Jack Dorsey as permanent CEO to replace Dick Costolo, CEO from 2010-2015. Costolo resigned over increasing pressure from Wall Street investors regarding the slow growth of the company.

Bloomberg reported that Dorsey has been pushing Twitter’s board to change aspects of the social media platform that once were deemed untouchable and immutable, such as the famous character limit.

“For example, Twitter has considered lifting a 140-character limit in posts, which has been the format since the company started. The company said Wednesday it will also change the ‘.@’ structure for replies on the site. Earlier in the day, Twitter said it would start displaying more popular tweets at the top of a user’s feed, instead of keeping them in the company’s traditional reverse-chronological stream.”

Whatever the future may hold for Twitter, it seems that big changes are on the horizon.

[Photo by Bethany Clarke/Getty Images]

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