Tim Bradshaw Closed As it happened: Twitter tumbles on first quarter earnings

Twitter’s stock was heading towards a new all-time low after reporting results that beat forecasts on the financials but left Wall Street wanting more from user growth and engagement. Hannah Kuchler and Tim Bradshaw brought live reaction and updates from the analyst call.

Shares in Twitter dropped 9 per cent in after market trading when the messaging platform failed to reverse a trend of slow user growth, shaking investor confidence that it could ever grow to the size of Facebook.

The home of the 140-character message reported first-quarter results which beat analyst expectations but disappointed on user numbers, which only edged up to 255m from 241m last quarter.

Twitter reported a non-GAAP loss per share of 0 cents, better than the consensus forecast for a 3 cents loss, and revenue of $250m, higher than the average analyst estimate for $241.5m. The net loss, on a GAAP basis, was $132,000.

Dick Costolo, Twitter’s chief executive, said it was a “very strong first quarter”.

“Revenue growth accelerated on a year over year basis fuelled by increased engagement and user growth,” he said. He pointed to Twitter’s mobile advertising network, launched earlier this month, as a sign that Twitter was rapidly increasing its reach and scale.

Read the rest of the news story here.

Investors are laser focused on Twitter’s user growth. Monthly active users may have grown 25 per cent year-on-year, but they only rose 6 per cent quarter-on-quarter. This is actually a tad better than the 4 per cent it had in the fourth quarter but is hardly a turnaround.

Twitter knows this is a problem and has been pulling out all the stops to redesign the platform, make it easier to join and just a bit more like Facebook. It even benefited from THAT Ellen selfie tweet at the Oscars which raised its profile further. But clearly not enough for shareholders.

Twitter call is starting. We’ll be hearing from Dick Costolo, chief exec.

They’re giving a generous amount of time for questions – 45 minutes, after a 15 minute intro. Some of those will be coming from Twitter, of course.

Costolo sounds pretty downbeat as he says: “We had a great first quarter.”

Twitter is executing on its stated plan to improve engagement, he says. “I love the work we’ve done making the platform more visually engaging. You’ll start to see more in organising content for new users and innovating on direct messages.”
(That last one is important because chat apps remain one of Twitter’s biggest competitive threats.)

Dick says he wants to talk about the “broader Twitter platform” which is really Twitter plus MoPub, their mobile ad exchange. “The only one at scale to offer publishers native in app advertising”.

He says in the second quarter they will launch an integrated bidding system to help advertisers. “To be very clear – few other companies with this kind of reach,” he said. Although, Facebook is one of them and they are expected to launch their mobile advertising network tomorrow.

Amid disappointment about its user growth, he’s touting Twitter’s “reach and impact” beyond Twitter itself. 3.3bn views of tweets about the Oscars in the three days after the Oscars. new syndication deals are coming soon. This is part of its “larger platform strategy” for content creators, publishers and advertisers to make use of realtime information, mobile scale and its “interest graph”.

“I’ve never been more excited about the opportunity in front of us,” Costolo concludes, handing over to CFO Mike Gupta.

Mike Gupta says advertising engagement rose 170 per cent year-on-year and 28 per cent quarter-on-quarter. This is particularly good given Q4 is traditionally the biggest advertising quarter because of holiday shopping. However, Twitter did benefit from a lot of live events: the Superbowl, Olympics, Oscars and Grammys.

eMarketer analyst Debra Aho Williamson tweets:

“MoPub and ad exchange provide a glimpse of Twitter’s platform ambitions.”

Data licensing (selling all the tweets) did well too – up 76 per cent year-on-year. That will only rise now they have bought data analytics co Gnip.

Twitter now has around 3,000 employees.

As Google and Facebook bid billions for start-ups, Twitter had $2.2bn in cash and marketable securities at the end of the quarter.

Gupta says they saw “good growth” in monthly active users with 14m net additons, compared with 9m in the fourth quarter. Most of these were international – 11m – but the 3m in the US was an acceleration. Timeline view figures, a measurement of engagement, suggested new users were just as engaged as old ones, he said.

International ad revenue rising much faster than US but from a much lower base.

Increase in ad engagements driven by higher quality ads and increase in rich media – that’s pictures and videos to you and I – he says.

Gupta says Twitter is not pursuing a secondary offering because investors do not want to sell stock when lock up is over. Which might have something to do with the price not being quite as high as they would like…

Twitter is raising its full year forecasts to $1.20bn to $1.25bn and adjusted EBITDA to $180m to $205m, in part thanks to the acquisition of Gnip, a data processing company. Here’s what Twitter said at the time of the deal:

Every day Twitter users share and discuss their interests and what’s happening in the world. These public Tweets can reveal a wide variety of insights — so much so that academic institutions, journalists, marketers, brands, politicians and developers regularly use aggregated Twitter data to spot trends, analyze sentiment, find breaking news, connect with customers and much more.

We want to make our data even more accessible, and the best way to do that is to work directly with our customers to get a better understanding of their needs. To that end, we have agreed to acquire Gnip, a leading provider of social data and a long-standing Twitter data partner. As Twitter has grown into a platform that delivers more than 500 million Tweets per day, Gnip has played a crucial role in collecting and digesting our public data and delivering the most essential Tweets to partners.

Read the full blogpost here.

First question: unsurprisingly on user metrics. Are product changes gaining momentum? Were they better at the end of the quarter than the start?

Dick says: There was no specific one thing in the first quarter change made responsible for majority of growth. Combinations of improvements and recommendations of accounts to follow, more global roll out of native mobile sign up process and prospect of making Twitter look more engaging.

He still firmly believes it will be the combination of changes which will result in change in growth of platform.

Oh dear, Dick is not showing himself as the best performer. Keeps saying vis a vis and multiplicative. Which I’m not sure is even a word.

Costolo is now talking about timeline views: in the first quarter they were stable versus monthly active users, which means engagement is steady for new and longtime users. But favourites and retweets are up too, he says, so that has a “multiplicative” effect – engagement per timeline flows through to monetisation.
Got that? Good.

Timeline view growth is diminished by a change made in the second half of last year to how Twitter shows conversations, which are now threaded together rather than having to click through to see previous tweets in an exchange. That’ll be the case next quarter too, Costolo explains.

Costolo is now talking about a “concentric circle of engagement across the broader twitter platform” creating what I think he said was a “combinatorial effect”. Um.

Again with the “when will Twitter be mainstream” question.
“We think of Twitter as a companion experience to what’s happening in your world,” says Costolo. “I see that as a consistent use case over time… The beauty of Twitter the platform today is we had 3.3bn views of tweets just about the Oscars in the 48 hours after the Oscars. That’s a big number.”
YouTube content networks get 3bn views a month. “I think we’d all consider YouTube to be a mainstream platform… Twitter the platform we believe is already incredibly mainstream. We have to help that world of users understand the increased value of the logged in experience.”

Dick says no specific month that wasn’t any stronger than any other or any specific product roll out that resulted in growth. Investors would have liked a single sign of hope to point to.

Taking a question from Twitter – are there any ad verticals showed strength of weakness? Mike said strong across all but a bit weaker in retail, as you might expect given it is not the holiday season. He said self serve platform is doing well for Twitter including launching in UK and other countries like a partnership in Japan.

Asked about chat apps, Costolo says he sees “regional differentiation” (eg KakaoTalk mainly big in Korea) whereas platforms like Twitter see broad global usage.
More on MoPub: Costolo says that marketers are looking for two things: scale and engagement. Thousands of in-app publishers use MoPub to deliver over 1bn iOS and Android users, that’s scale. Twitter’s own ad unit brings great engagement, Costolo says.

Costolo feels that Twitter is “almost ubiquitous” in other media, giving an opportunity to reengage users who’ve signed up but didn’t stay.

So where are the biggest “white space” opportunities?
The best international opportunity is in private messaging to “strengthen the core” of the Twitter product, to move “more fluidly” between public and private conversations, says Costolo. Private conversation is “culturally looked up on as more valuable” in some markets, he says. Twitter will look to strengthen the DM feature “within the product” to take advantage of that, he says.

Twitter is seeing great conversion with the app install ads, great feedback from early partners like Spotify but too early to quantify the opportunity. Facebook has made a bomb from mobile app install ads, as they are a key way for app publishers to win users outside of the crowded app store.

Next question is on ad loads. Is there more room to show more ads to each user?
The analyst says Twitter generates $1 in revenue per user per quarter, but rivals do better.

Mike Gupta says that ad load remains “very low”. “The focus for us is user experience.” Doesn’t sound like they’re keen to increase the number of ads we users see anytime soon.
Twitter looks at ad revenue per timeline view rather than ARPU, he says and sees “meaningful runway there”, thanks to improvements on both advertising and the main product.

Dick is asked about a quote from NBC Universal, reported by the FT on Monday, that said Twitter’s TV strategy was the emperor that had no clothes. (H/T Emily Steel)
He said there is plenty of data that shows the “two way complementary relationship between Twitter and TV” including stopping people turning off. Along with the increasing number of partners in the Amplify, that shows the strategy is moving in the right direction.

Here’s Emily’s story on Twitter and TV:

NBCUniversal’s head of research Alan Wurtzel says that social media “is not a game changer yet” in influencing television viewing.

During the 18-day period of coverage, just 19 per cent of Olympic viewers posted about the games on social media, the broadcaster found. Mr Wurtzel said that a show’s ratings are more likely to drive activity on social media rather than vice versa.

“A lot of people want to show that they are on the cutting edge. One of the things that is on the cutting edge is social media,” Mr Wurtzel said. “Why wouldn’t I want to say to you, ‘We have a potent new way in which we can drive ratings?’

But “it just isn’t true”, he added. “I am saying the emperor wears no clothes. It is what it is. These are the numbers.”

Read the full story here.

Dick now explaining the Gnip acquisition. Data is “strategic” to the future, as companies are using it for increasingly interesting predictive analytics. Won’t say the price though.

An analyst is concerned that Twitter is too dependent on big live events for ad dollars.
Advertisers are focusing on live events, Gupta replies, thanks to Amplify TV conversations and keyword targeting. But not too dependent. “These events, while large, are not the vast majority of revenue in the quarter.” There were 25m tweets about the Super Bowl but 1m tweets are posted about sports everyday.

Costolo adds: Advertisers and marketers are engaging in the event and the conversation at the same time. Heineken’s #sharethesofa campaign shares conversations with soccer greats about football games as they are happening, an example of how brands use Twitter as the “second screen”. Engagement rates go up in such campaigns.

Twitter investors have not been reassured by this call. In fact, they’re even more worried, judging by the stock price, which is now down 11 per cent.

“I’m really happy with engagement in Q1,” says Costolo. “It’s really fantastic across a number of dimensions.” Twitter is trying to increase the value of a timeline – again referring to the increase in retweets and favourites. Net new users are just as engaged as existing users. That flows through into monetisation.

Are investors and employees precluded from selling stock?
Employees and early investors are not precluded from selling on lock-up expiration, says Gupta. But several large early investors and several key insiders do not intend to sell immediately upon lockup expiration. That’s a “meaningful portion” of supply that could in theory come to market, he adds.

Twitter will not go down the Facebook path of unbundling itself into a portfolio of apps, Costolo says. Focused on improving the core experience and Vine, its 6-second video app (which we haven’t heard much about lately).

And that concludes Twitter’s earnings call for today. Its shares are still skirting all-time lows in the aftermarket, down 10 per cent, having closed up 5 per cent in regular trading.

A wounding comment just landed in the FT’s inbox from Robin Grant, managing director of We Are Social, a social media marketing agency:

“The market is rightly concerned about the static engagement levels on the site.”

“With all the attention surrounding Facebook’s acquisition of WhatsApp, the growth of competitors like WeChat, Line and KakaoTalk and Weibo’s stock market debut, the smart money is coming to the conclusion that not only that this is no longer a two horse race, but that Twitter is looking increasingly looking like a non-runner.”

Chris Sacca, an early Twitter investor, responds to the share price fall:

“Dear Wall St: you had the same tired questions about Twitter stock when I was buying it at $4b. Let’s revisit this in a couple years. Cool?”

Tech analyst Horace Dediu (@asymco) dryly observes:

“Seems that Apple’s [monthly active users] are growing faster than Twitter’s.”

That’s it from the liveblog but Hannah Kuchler is about to interview Dick Costolo, so stay tuned for more Twitter on FT.com.