You might be surprised to learn that the police scanners Jack Dorsey listened to as a kid inspired Twitter. But the ability to have a quick conversation in a short string of characters has only increased in appeal. Twitter launched in 2006 as an innovative, social media, microblogging tool for the public to use. And over the course of time, Twitter has had to adapt and overcome to stay in flight. So unsurprisingly, Twitter’s earnings report this quarter highlights how a shift in strategy is creating new turbulence in the market. But are the bold changes enough to keep Twitter’s revenues in the black indefinitely?
Historical Challenges Amidst Chaos and Change
Twitter’s earnings report for the third quarter this year is somewhat of a surprise. For one, Twitter’s revenues rose to $758 million this quarter resulting in a 15 percent jump in its stock price.
But the Twitter earnings report also showed a loss of nine million users. Normally, such results on Twitter’s earnings report might send investors running. But not this time. Unlike in the past, Jack Dorsey is back at the helm. Likewise, Twitter is embracing a new strategy that is entirely different from its past.
After Twitter launched its IPO in 2013, the valuation of the company reached $31 billion. Things looked pretty rosy at the time, and Twitter’s revenues were growing exponentially. But things took a progressive drop thereafter. Twitter’s earning reports from early 2014 to mid-2017 fell more than 400 percent. Increasing difficulties in getting advertisers to “buy-in,” and a lack of substantial profits, made investors less bullish. Also, leadership constantly changed amidst the chaos.
A Coming Home Party and a New Direction
After co-founder Evan Williams stepped down as CEO, Dick Costolo then took over. But his tenure was fairly short as well after Twitter’s revenues failed to improve. In 2015, co-founder Jack Dorsey resumed the bold leadership role of CEO after leaving in 2008. Many Twitter employees compared Dorsey’s return to that of Steve Jobs at Apple…and perhaps for a good reason. Though the turnaround was not immediate, Dorsey implemented new strategies that are now coming to fruition. Based on Twitter’s earning report results this quarter, it would suggest the new strategy is indeed paying off.
What is this new strategy resulting in Twitter’s revenues going beyond expectations? According to Jack Dorsey, the new strategy is all about creating a better experience — for users, for advertisers, for everyone. Major aspects of this new strategy involve a commitment to live video and video streaming of content. As a conversational “superpower,” Twitter is looking to create better conversations for users around videos, events, and happenings. However, that is not all. They use the same conversational experiences to attract advertisers. According to Dorsey, Twitter has become THE place to launch new products and services.
But What About the Nine Million Lost Users?
Twitter’s earnings report also noted that the company had seen a reduction in users from 335 million to 326 million. It seems like a pretty significant drop, but despite this, Twitter’s revenues are soaring as advertisers are showing a preference for Twitter over other social media competitors. Why? Because Twitter has invested in health. As noted by CFO Ned Segal, Twitter is committed to health work and safety, which means getting rid of fake/troll accounts. In fact, Twitter is using artificial intelligence and machine learning to identify spammy suspicious account construction. The move is very appealing to users and advertisers alike.
In employing these measures, many user accounts would naturally be eliminated. In essence, these deleted accounts represent the vast majority of those nine million lost users. What Twitter’s earnings report shows, however, is that “real” users are more engaged and receptive overall. And because of this, advertisers find their return on investment from Twitter more appealing. The development of better ad formats and metrics complement these efforts as well. By investing in better quality “health” of the platform, Twitter’s revenues seem to be getting a significant boost.
Jack Dorsey is Expanding on a Winning Strategy
So, what’s next for Jack Dorsey and Twitter? Can Twitter’s earnings reports for the fourth quarter surpass the most recent one? While these questions await answers, Twitter is embarking on some additional strategies that might pay off big. In an effort to further promote health and safety, Twitter is developing identity stamps to ensure the authenticity of users. Twitter has already developed an “Ad Transparency Center” to let users see where political election advertisers are targeting messages.
Other directions are also being pursued. Twitter continues to expand its conversational options for its live events and video streams. Though the social media space is very competitive and dynamic, Twitter seems to be well positioned for ongoing success. It may well be that Twitter’s earning report is simply a hint of better things to come.
