Twitter’s Advertising Revenue Declines Despite Heavy Emphasis on Video

Platform found success in livestreaming events

Twitt
Sources: Getty Images, Twitter

Twitter’s advertising revenue slightly declined in the fourth quarter, as the lagging social media company struggled to build a rapid user base despite increasingly its emphasis on live video.

According to the company’s Q4 2016 earnings report released this morning, advertising revenue in fourth-quarter 2016 totaled $638 million, which is down slightly year over year, with mobile devices raking in 89 percent of total revenue. The company said video now makes up the largest portion of advertising revenue, which Twitter said was largely driven in part by the company’s bets on live video and accompanying video ad formats. Total revenue for the quarter was $717 million—up just 1 percent from fourth-quarter 2015. Twitter’s stock fell 10 percent following the announcement of the disappointing earnings.

“2016 was a transformative year as we reset and focused on why people use Twitter: It’s the fastest way to see what’s happening and what everyone’s talking about,” Twitter CEO Jack Dorsey said in a statement. “We overcame the toughest challenge for any consumer service at scale by reversing declining audience trends and re-accelerating usage.”

Twitter gained 2 million monthly active users in the fourth quarter of 2016, up 4 percent year over year, while daily active users grew 11 percent to an undisclosed total. On an earnings call on Thursday morning, Twitter COO Anthony Noto said the increase in DAUs was driven by product changes and marketing.

Even while Twitter ad revenue saw a slight decline, ad engagement on the platform was up significantly, rising 151 percent year over year, which the company said was driven by a shift toward video impressions and higher clickthrough rates. Cost per click fell, declining 60 percent year over year, which also was driven by the higher video engagement. Revenue from direct-response ads declined, which the company said was due to declines in downloads for Twitter’s mobile app and website click ad formats.

The company said in a letter to shareholders that it’s also betting more on revenue from data licensing, with plans to “more aggressively grow” the revenue stream—which grew 14 percent to $79 million—by taking a more “brand-centric approach to channels, markets, products, and pricing” through increasingly integrating with partners such as Sprinklr, Sprout Social and Conversocial.

“As we re-evaluate our revenue product features and roadmaps, we are applying the same focused approach that drove renewed monthly and daily active usage growth in 2016 to simplify our portfolio and our buying process for advertisers,” according to Twitter’s letter. “We’ll focus our investment in revenue product features that differentiate Twitter and capitalize on our unique value proposition for advertisers, including video and more organic ad formats.”

Twitter spent a good proportion of 2016 building its live video experience. Last quarter, the company attracted 31 million unique viewers last quarter by livestreaming around 400 events, thanks to partnerships with major sports leagues like the NFL and MLB while also harnessing the hype of the 2016 presidential election through partnerships with Bloomberg, BuzzFeed and PBS. According to Twitter, those partnerships added up to more than 600 hours of live content, composed of 52 percent from sports events, 38 percent from news and politics and 10 percent from entertainment.

While most of the content partnerships are based in the U.S., users are coming from much farther away. Of total unique live video viewers, Twitter said 33 percent came from outside of the U.S., which 50 percent of total viewers comprised of users under the age of 25.

“Livestreaming video drives conversation, connection and engagement on Twitter, reinforcing our position as the best and fastest place to see what’s happening in the world and what people are talking about,” according to the shareholder letter. “Our livestreaming content focuses on Twitter’s key areas of strength—news and politics, live sports and esports, and live entertainment—for a global audience. Additionally, people from all over the world now broadcast live content from a variety of devices, including phones, drones and GoPros, powered by Periscope.”

Adding more ways for users to engage beyond posting quick, 140-character blurbs would be a “silver bullet,” said Chris Innes, chief monetization officer of the advertising software company SteelHouse. However, Facebook and Snapchat pushing more into video doesn’t help it.

“Twitter offers video-based advertising, but at the end of the day it’s still a social platform founded in text,” Innes said. “However, since Twitter already has the user base and the scale, it’s primed to be a strong performance channel—they just need to catch up.”