By Yoree Koh
After a troubling start as a public company, Twitter Inc. plans
to try out some new numbers on Wall Street.
When it reports second-quarter earnings on July 29, the San
Francisco company is expected to unveil as many as four new metrics
that it hopes will illustrate its reach beyond the 255 million
users that log in at least once a month, according to people
familiar with the matter. The aim: to show Twitter isn't just a
diminutive Facebook Inc.
The new metrics will measure the breadth of the audience that is
exposed to Twitter's content but not logged in, the people said.
Executives hope to shift the perception of Twitter from a social
network to a broadcast platform in the likeness of Google Inc.'s
YouTube, whose videos are often embedded on other sites.
Twitter declined to comment, citing the quiet period before
earnings.
Despite doubling revenue for each of the past five quarters,
Twitter's moneymaking successes have been overshadowed by faltering
user growth, forcing investors to recalibrate their long-term
expectations.
Twitter sizes up its digital town square by the number of users
who log into the service at least once a month. That standard
industry metric, called monthly active users, and a self-invented
measurement called timeline views designed for advertisers to track
usage, were the primary nonfinancial metrics offered to potential
investors when Twitter went public in November.
But those metrics backfired after the company reported abruptly
slowing user growth and signs of a less-engaged audience, sending
the stock to new lows and raising unflattering comparisons to
Facebook, whose user base is about five times larger. The new
metrics will supplement these two measurements.
The situation is a sore point inside the company. Adding more
users to the 140-character messaging service had become a top
priority. Now, with investor patience wearing thin, Twitter Chief
Executive Dick Costolo is looking to more immediately assuage
concerns.
Because Twitter is a public forum, content spreads more broadly
than the private status updates posted on Facebook. Many people who
aren't on Twitter see tweets in other places, such as scrolling
across TV screens or embedded in news stories. Some nonusers also
visit the site, viewing tweets on user profiles for example, but
don't sign up.
Done correctly, the numbers could help close the gap between
Twitter's seemingly ubiquitous presence in media and its more niche
user base.
It isn't clear whether Twitter will use a third-party data
provider for any of the metrics. LinkedIn, for example, discloses
data from comScore, which also tracks Twitter's unique visitors in
the U.S., or those who access the Twitter site or mobile app. That
latest figure was 117 million in June, twice the 57 million monthly
active U.S. users Twitter reported in the first quarter.
Whatever the numbers, Twitter will need to demonstrate strong
growth over the long haul and how it can make money from users who
aren't logged in. Most of Twitter's revenue comes from advertising,
which is earned whenever a user interacts with an ad such as by
retweeting, replying, favoriting or clicking on the ad.
To help sell the new metrics, Mr. Costolo earlier this month
recruited Anthony Noto, a former Goldman Sachs Group Inc. banker,
to replace Mike Gupta as chief financial officer. Together Messrs.
Noto and Gupta steered Twitter through its IPO just eight months
ago.
They crafted much of Twitter's IPO documents, devising which
metrics to present to potential investors, according to people
familiar with Twitter's IPO process. Mr. Costolo hopes Mr. Noto
will be more adept at communicating Twitter's business to his
former peers than Mr. Gupta.
Mr. Noto's appointment is the latest in a flurry of changes to
Twitter's executive lineup. Since April, Twitter has hired a new
product chief, replaced its heads of engineering and finance and
divvied up the duties of its former operating chief, Ali Rowghani.
Mr. Gupta is now in charge of overseeing a new team investing in
startups.
Which nonfinancial metrics to use in its IPO documents was a
main source of debate between Twitter management and its team of
bankers and lawyers. They had to find a formula that was
informative enough to please the Securities and Exchange
Commission, yet can withstand changes to the product and doesn't
give away competitive information.
The team debated ways to illustrate user engagement, but it
rejected several ideas, such as disclosing daily active users over
time, people familiar with the matter said. In the IPO prospectus,
Twitter said it had 100 million daily active users, less than half
the number of monthly users it had at the time.
Messrs. Gupta, Noto and Costolo considered disclosing how much
users interact with tweets, including the rate at which users
clicked on links, favorited or retweeted messages, for example,
according to people familiar with the situation. Twitter's revenue
team rejected that proposal because it didn't want advertisers to
compare how much a user engages with tweets versus those that are
sponsored, according to people familiar with the situation.
The company eventually settled on timeline views, which tracks
the number of times users view or refresh their message feed. The
metric fell on shaky ground in February when timeline views slipped
in the fourth quarter for the first time sequentially. Mr. Costolo
publicly played down the metric, saying on the earnings call it was
affected in the quarter by product changes. He supplemented the
explanation by saying other engagement metrics, such as the volume
of retweets and "favorites," increased 35%.
Mr. Costolo has hinted at what might come. In recent months, he
has started to characterize Twitter's vast size by the number of
impressions, or the number of times tweets have been viewed.
Some analysts are unconvinced unless Twitter management can show
how to monetize its reach, said Youssef Squali, an analyst at
Cantor Fitzgerald.
"With all of these social platforms," he said, "there are only
two metrics that matter: how many people use it and how they use
it."
Write to Yoree Koh at yoree.koh@wsj.com
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