By Yoree Koh
Jack Dorsey's celebrated return as Twitter Inc.'s chief one year
ago raised hopes he could revive the struggling company he
co-founded.
On Tuesday, Twitter showed it still suffers from shrinking
revenue growth and weak user numbers.
Twitter reported its revenue rose 20% to $602 million in the
second quarter, its smallest gain and eighth-straight period of
declining growth.
The social-media company further warned that demand from
advertisers, its main source of revenue, is softer than expected,
hurting its outlook for the third quarter.
Twitter's user growth continues to show little signs of life.
The company added 3 million net new users in the most recent
three-month period, up just 1% from the previous quarter, giving it
313 million users who log in at least once a month.
All told, Twitter has added just 9 million users -- and only 1
million users in the U.S. -- since Mr. Dorsey's return in July
2015. Facebook Inc., by contrast, has added more than 164 million
monthly users in that time frame.
In a letter to shareholders, Twitter acknowledged it is losing
its shine compared with other social-media advertising offerings.
It said there is "increased competition for social marketing
budgets" and that its premium pricing is hurting its appeal.
"We need to tap into other parts of the advertising budget,
specifically the online video advertising budgets," Twitter's CFO
Anthony Noto said in an interview. He added that will be a "gradual
process" that requires the company to build out tools that would
enable advertisers to reach specific demographics with specific
frequency.
In the previous quarter, Twitter executives said they expected
the softening demand from big brand advertisers to ease up in the
second half of year. On Tuesday, they said it would likely extend
into 2017.
On Tuesday's call with analysts, Mr. Dorsey struck a positive
tone with regards to the user growth. "What makes our audience
growth this quarter notable is we can see directly the link between
the product changes we made and our growth," Mr. Dorsey said.
"We're making the right decisions and our product and it gives us a
foundation for future growth."
Mr. Noto, in an interview later, said that this growth was
driven by showing users more relevant content in their timelines
and improved push notifications, which have become more targeted
and timely.
In after-hours trading Tuesday, Twitter's shares fell about 11%
to $16.39, wiping out some of the gains from the past month. That
is the fourth straight double-digit decline immediately following
Twitter's quarterly earnings release.
Tuesday's stinging report coupled with a deal-friendly climate
in Silicon Valley these days could reignite questions around
Twitter's fate as an independent public company.
Microsoft Corp.'s $26 billion acquisition of LinkedIn Corp. in
mid-June helped fuel that speculation, and pushed Twitter's stock
up more than 30% before Tuesday.
Asked by an analyst why it makes sense for Twitter to remain
independent, Mr. Dorsey said Tuesday, "I think there is just so
much farther to go in terms of our strength as not only a service
of importance, but also a company in a business of importance," he
said.
Under Mr. Dorsey, Twitter has sought to reinvigorate its ads
business around video and revive user growth by making the
short-messaging service he invented easier to use.
In recent months, the company has tried to make it easier for
users to find interesting content faster, abolished unnecessarily
complicated user rules and altered the way it counts what will be
part of the 140-character limit.
What's more, as Twitter continues to struggle, competitors
Facebook Inc., Instagram and Snapchat have gained ground. About
1.65 billion people sign into Facebook each month, and the social
network's photo-sharing app Instagram recently passed 500 million
users. About 150 million people use Snapchat each day, according to
a person familiar with the matter.
Twitter is hoping to pull in more users with its live-video
strategy. It has signed a spate of live-streaming deals in recent
months for rights to broadcast politics, sports and financial news
content. It has focused on sports in particular, resulting in deals
that include the rights to live-stream games from the National
Football League, Major League Baseball and National Hockey League
this fall.
Twitter will be able to earn revenue from the ads sold against
this content. The company still has a lot of catching up to do
against market leaders Google, owned by Alphabet Inc., and
Facebook.
According to eMarketer, Twitter will earn $2.61 billion in total
digital-ad revenue world-wide this year, up 30.8% from 2015.
Twitter's share of the global digital-ad market is expected to edge
up slightly to 1.4% from 1.3% last year.
Twitter is projected to grab a 7.9% share of world-wide social
network ad spending this year, according to eMarketer, a fraction
compared with Facebook's estimated 67.9%.
Twitter remains unprofitable, largely because of lofty
stock-compensation costs. The company posted a loss of $107.2
million, or 15 cents a share, compared with a year-earlier loss of
$136.7 million, or 21 cents a share.
Stock-compensation expenses made up 28% of revenue, one of the
highest percentages among companies with $1 billion or more in
annual revenue.
Write to Yoree Koh at yoree.koh@wsj.com
(END) Dow Jones Newswires
July 27, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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