Twitter Considering Subscriptions as Revenue Fails to Keep Pace With Growth

Twitter reported record user growth in the second quarter of 2020, but its revenue fell short of industry estimates. The company reported 186 million monetizable daily active users (mDAU)—or daily users who can view ads—an increase of 34% year over year for the same quarter. It was the “highest quarterly year-over-year growth rate we've delivered,” Twitter CEO Jack Dorsey said in a statement. In all, Twitter has added 20 million users since last quarter. But the company struggled to meet revenue projections, bringing in only $683 million, down 19% from the same time last year. That number fell short of the $700 million analyst consensus for the quarter. Twitter CFO Ned Segal said that figure reflects “moderate recovery in advertising demand relative to the last three weeks of March.” Twitter reported ad revenues of $562 million this quarter, down 23% year over year. Ad sales now make up 82% of the company’s total revenue. Twitter recorded a net operating loss of $124 million this quarter, citing $807 million worth of expenses—a 5% increase year over year—mainly due to “growing headcount and investing in our objectives in the current environment.” Segal said Twitter has completed its ad server rebuild and is “making progress accelerating our performance ads roadmap.” Direct response advertising has been a “thorn in Twitter’s side for years," said eMarketer senior analyst Jasmine Enberg. “Despite ongoing improvements to its offering, the relative lack of direct response advertisers, combined with the continued suspension of many events due to the pandemic, has hurt Twitter’s Q2 ad revenues,” Enberg said. “Still, its Q2 ad revenue decline is a moderate improvement over the steep losses it incurred in March.” After the earnings announcement, Twitter’s stock rose about 5% in premarket trading. Twitter said it boosted its direct response advertising offerings in Q2, including improving measurement and prediction. A second trial run of its mobile application promotion (MAP) product is also underway. While Twitter has suffered from the lack of live sports, Segal was optimistic for the platform's role in modified sports that will return this year (including Major League Baseball, which premieres tonight). Without fans in many stadiums, he touted Twitter’s “ability to be the stadium,” and promised the company is working on “innovative stuff” during an earnings call today. Twitter's experimentation already with virtual events may have “helped boost engagement and could prove attractive to advertisers," Enberg said. Twitter is forecast to bring in $2.72 billion in ad revenue by the end of 2020, a 7.5% drop since last year, according to eMarketer. It also predicts Twitter’s user base will grow to 305.9 million users by the end of 2020, a 6.1% bump year over year. Twitter said it’s “exploring additional potential revenue product opportunities,” potentially including “subscriptions and other approaches.” Dorsey hinted at a possible subscription service that let users access news publishers through the site. But company executives said they don't expect these to be viable revenue streams this year. “We have a really high bar for when we would ask consumers to pay for Twitter,” Dorsey said, adding that any subscription or commerce introduced would have to complement Twitter’s advertising business. Dorsey also apologized for Twitter’s recent security breach, in which hackers accessed 130 high-profile accounts including those of former president Barack Obama, former Vice President and current Democratic nominee Joe Biden, and billionaires Jeff Bezos and Bill Gates, among others. “We moved quickly to address what happened, and have taken additional steps to improve resiliency against targeted social engineering attempts, implemented numerous safeguards to improve the security of our internal systems, and are working with law enforcement,” Dorsey said, adding that the company would "continue to be transparent." Twitter execs also pointed to their ramped-up efforts to clamp down on misinformation. In the earnings call, Dorsey said he wants to “operate under a principle of ‘show don’t tell’” and emphasized the company’s actions banning political ads, restricting or fact-checking tweets from world leaders, and cracking down on the conspiracy theory QAnon. When asked by an analyst about Unilever halting spending on Twitter amid an advertiser boycott that’s largely focused on Facebook’s policies on hate speech and misinformation, Dorsey did not address the question directly or specifically refer to Facebook, but insisted that “advertisers are definitely taking note... of our differences.”