First it was Alphabet (Google), Apple and now it is Twitter [NYSE:TWTR]. The news of earnings woes is becoming scary in Silicon Valley.
While Twitter did made gross revenue of USD 595 million, represent a percentage growth of 36% year-over-year, and about 30% adjusted EBITDA margin, the company failed to meet analyst estimates of USD 608 million. This is a disappointing outing for a company that has never made profit.
Here is why Twitter is finding it difficult to either meet estimates or declare a profit.
The major challenge facing Twitter’s reliance on its ‘slow-burn advertising’ as its single source of revenue. While its advertising revenue is growing from quarter to quarter, Twitter is still finding it difficult to get big time advertisers to spend more money. According to its report, “total advertising revenue was$531 million, an increase of 37% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, advertising revenue would have increased 39%. Mobile advertising revenue was 88% of total advertising revenue”. Data licensing is only earning Twitter USD 64 million. The company needs to diversify its source of revenue beyond its native advertising products.
While its advertising revenue continues to grow, the major challenge is that Twitter’s advertising products has not gotten a strong foothold outside of the US. It “U.S. revenue totaled $390 million, an increase of 35% year-over-year. o International revenue totaled $204 million, an increase of 39% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, international revenue would have increased 46%”
For a company that wants to scale its advertising revenue, Twitter needs a scaled marketing and sales force. To grow Twitter advertising revenue, the company needs to learn from Facebook. Many advertisers in emerging markets do not have direct access to Twitter’s advertising platform. For Nigeria, agencies are still been routed to South Africa to promote contents and tweets on Twitter.
Twitter also need to not only acquire strategic companies but it needs internal innovation.
Since the release of the result, Twitter’s shares have started on a free fall.
