MarketLine Blog

Trouble at Twitter: Profit still elusive

Twitter, the micro-blogging social media platform, is struggling. In a week that reminded us of the cost of missing the boat in the tech world, as Yahoo is sold for $5 billion, a mere 25th of its peak value, Twitter released its Q2 results. What they showed was a platform hampered by virtually stagnant growth, and a company that has yet to make a profit, despite being well on its way to ten years old.

Twitter makes its money by charging advertisers to boost the visibility of tweets and videos. The idea is that, rather than banner advertisements, which research has shown are often ignored by, or even irritate, the average user, this form of ‘native advertisement’ appears more organic, and is therefore more effective. Advertising makes up 90% of Twitter’s revenue, with the rest being made up via data analytics, given the sheer volume of valuable consumer data the site collects. In spite of these two potentially lucrative revenue streams, Twitter is yet to make a profit.

The main reason for this is that the service is failing to grow its user base, and is struggling to keep many users engaged. The site has a far higher ‘churn rate’ (the amount of users who lose interest and leave the site after signing up) than competitors such as Facebook, and a much lower monthly active user (MAU) growth rate. The upshot of this is that Twitter is losing out in the race to attract the most lucrative advertisers, as its reach and offering are less attractive.

Alongside the failure to grow the service’s user base, the company continues to make huge losses. Expenditure continues to grow, with acquisitions making up a large part of that, but Twitter is yet to convert these acquisitions into an effective income generator. All the while, the company value is slipping, now down to a little over a quarter of its (perhaps over-inflated) December 2013 high of $40 billion.

With tweaks such as Twitter Moments (a feature which uses human input to collate tweets around a certain topic), and the algorithmic, rather than chronological newsfeed (designed to display the stories most relevant to a user’s tastes, rather than the most up-to-date) failing to have any great impact on MAUs, Twitter’s latest acquisition, that of British tech start-up Magic Pony may hold the key. Magic Pony’s technology uses machine learning to enhance video quality, allowing Twitter to focus on its aim of re-purposing the platform for the streaming of live events, in tandem with the usual real-time online conversation that the service has been built around. However, what remains to be seen is whether will be an effective enough draw to turn round the fortunes of what was once some of the hottest tech property.

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