Unfortunately for Twitter, a great media platform isn't necessarily a hugely profitable one

By James Robinson , written on February 5, 2014

From The News Desk

The bad news for Twitter after today’s quarterly earnings announcement, the first since its headline grabbing IPO, is that you can have the best product in the world and it still doesn’t guarantee you a ton of profit.

Throughout this afternoon’s hour-long earnings call, Twitter CEO Dick Costolo leaned heavily on product evangelism. “It’s the best real time product in the world,” Costolo gushed. “It’s the consummate second screen.”

And there were numbers released today that Costolo was understandably enthusiastic about, which reflect back at him his hopes for the company he runs. Quarter four revenue was $243 million and the full year take for 2013 was $665 million, up 116 and 110 percent on the figures a year previous and better than analysts had projected. User interaction was up, direct messaging was 25 percent higher and use of search spiked 120 percent. Of its 241 million monthly active users, three-quarters of them are on mobile, which means it is well placed to run with the current mass migration away from the desktop.

It’s no secret that Twitter’s most active users love the product, but that’s not enough for it to be a financial powerhouse. Today’s rosier news came twisted around more cumbersome realities, the most pressing being around its anemic user growth.

In the US - where the company makes most of its money - Twitter added just one million monthly active users last quarter, representing growth of less than two percent on the quarter before it. Globally, it added only eight million active users, for a little less than four percent growth. Timeline views also fell by seven percent, a troubling indicator that wasn’t fully explained.

Trying to draw credible long term conclusions from this announcement is futile. Twitter’s future remains opaque. Objectively, it has a growth issue. Placed side-by-side with Facebook at the relevant stages in company histories, its expansion is flat compared with the explosion in user base Facebook enjoyed for many years.

Put another way, Twitter has a mom problem. My mom uses Facebook earnestly and in high amounts and uses it lurk covertly and spy on her children. She knows what Twitter is and is conversant about the medium, but I’d put long odds on her ever signing up.

Costolo didn’t lay down any specific projections or goals for bringing more people on to Twitter and making it broadly accessible, aside from saying that Twitter was “doubling down to accelerate the growth of our core user base.” The use of more rich media in the timeline and arranging Tweets by subject as well as chronology, will help this along, he said.

But he had no specific answer for just how Twitter plans to make itself accessible to users who aren’t so much interested in a real time media platform as a slower, less hyperactive and more social one.

“We don’t need to change any characteristics of our platform, we simply need to make Twitter a better Twitter,” Costolo said. But if the slow growth in users indicates that Twitter is hitting up against the sides of its natural market niche, can Costolo popularize the site without changing up the whole ballgame?

It doesn’t spell doom for Twitter and we should all learn from our collective predictions of Facebook’s demise after its early struggles adapting to mobile. But whereas Facebook’s problems were a single fix - make more money on mobile - Twitter’s aren’t.

Twitter made about half as much money as it spent last quarter but even if the growth we’re seeing now is the growth its stuck with, the company still has a lot of room to make more money off each of its users. It made $1.49 per thousand timeline views in quarter four, 76 percent higher than the same quarter in 2012. It’s revenue per user is around 70 cents. It might never get to a Facebook-sized captive audience, but as with all social media, as it becomes better at delivering ads, each ad becomes more valuable.

And Twitter has made good moves in this direction. It bought MoPub, giving it mobile retargeting capabilities, it expanded its self-serve advertising platform to the UK, Ireland and Canada, it has given advertisers the chance to target conversations, tailored audience, track conversions and promote accounts and is making movements into mobile commerce. Its users are highly engaged, it is habitually used as a second screen and it’s disruptive potential as an advertiser and live test audience is yet to be fully tapped into.

Leading into the stock announcement Twitter’s stock was trading at $66, more than twice what the Wall Street consensus was of its true value. The only guarantee following on from this announcement is a slump in stock price and a greater volume of panicky analysis around growth. These doubts may be fair, but the company’s future is still staked on questions that haven’t been answered yet.

[illustration by Brad Jonas for Pando]