Twitter Needs New Leadership
Twitter Needs New Leadership
Yesterday Twitter released very disappointing quarterly results, with misses on both user and revenue growth. From the Wall Street Journal :
Twitter Inc. delivered its weakest quarterly revenue growth as a publicly traded company, casting a shadow on its fledgling advertising business, which until now has been a consistent bright spot. Investors, who sent the company’s stock down nearly 20%, were hit with a double whammy Tuesday as Twitter’s first-quarter results were leaked on the social-media service itself an hour before their release was expected.
The symbolism of the leak was appropriate: Twitter the service is so clearly indispensable, at least for some, but Twitter the company can’t seem to get it right. 1 And so, after five years in charge, I believe it’s time for Twitter’s leadership, in particular CEO Dick Costolo, to make way for new leadership that has improved credibility with Wall Street, with developers, and within Twitter itself.
Note: At the bottom of the article I have included a number of links to previous articles and Daily Updates where I developed many of the individual pieces of this argument; in other words, this is not a knee-jerk reaction to one bad earnings report, but rather a culmination of years of concern
Twitter’s Fundamental Problem
Twitter’s fundamental problem is that their active user growth is simply too small given their current size. Twitter yesterday reported the service had 302 million Monthly Active Users (MAUs), an increase of only 18% year-over-year and 5% quarter-over-quarter (and the company said the current quarter would be worse!). This is a fraction of Facebook, half of Facebook Messenger , fewer than Instagram and not that much bigger than SnapChat ; presuming the latter service passes Twitter later this year, Twitter will be only the 5th most popular U.S.-based social networking service looking to monetize through advertising. This distinction — which excludes WhatsApp, at least for now — is a critical one, because the issue with advertisers is most don’t have the time or ability to work with multiple services; it’s likely most digital advertising spending (which I believe is set to expand greatly ) will be consolidated onto the biggest networks (along with Google’s properties), with Facebook taking the lion’s share . Were that to happen, it’s easy to see Twitter as the odd network out. 2
Worrying Signs from Advertisers
Twitter’s recent results suggest this shakeout may already be happening. CFO Anthony Noto was asked repeatedly on the earning’s conference call about Twitter’s success in retaining advertisers, and Noto repeatedly refused to answer the question, instead stating that “year-over-year growth [in total advertisers] was very similar to what it was in the fourth quarter.” The problem, though, is that later in the call Noto noted that Twitter’s advertising load factor was flat: if Twitter was adding advertisers, but not ads, that strongly suggests that the company is in fact losing advertisers just as quickly as it is adding them.
Noto’s other justifications for Twitter’s revenue miss weren’t very compelling, either:
- The first was that “some advertisers limited spending at higher levels of scale because the bids required to win incremental auctions were higher than they were willing to pay, which limited additional spending.” In other words, larger advertisers had in mind a price they were willing to pay, and preferred to reach fewer users rather than pay a higher price, suggesting that advertisers saw limited value in Twitter’s ads
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