Thoughts on Twitter’s Q2 2015 earnings

Twitter is one of the companies I’ve written about most here on Beyond Devices. Some examples from the past year include:

You can see the full set of past posts here. I feel like last quarter’s post in particular sums up a lot of the same themes that came out of this quarter’s earnings call, but there are a few new points I want to make. I also tweeted out some charts earlier which you might find interesting, and the full set of Twitter charts will be in the deck that will go to Jackdaw Research Quarterly Decks subscribers soon.

Jack Dorsey’s audition went well

Given Square’s IPO plans, a lot of people have speculated that Jack Dorsey would be out of the running for the permanent CEO job at Twitter, especially given that the board has signaled it wants a full-time CEO. However, given the opportunity on today’s call to take himself out of the running, Dorsey refused to do so. Instead, he effectively auditioned for the post of permanent CEO during his remarks, and I think he did a fairly good job. Ironically, the market reacted badly, but I think what they’re reacting to is the true state of Twitter, versus the overly-rosy version Dick Costolo had been trying to sell the Street for the past few quarters. I don’t have a transcript yet, so this is all based on my own hastily typed notes, but some of the key things Dorsey talked about that stuck out to me were:

  • Realism about user growth and how poor it is, and how this is unacceptable — Twitter appears to have become stuck at around 300 million users, but it clearly has massive potential to be more than that, and Dorsey seems keen to fulfill that larger potential. Interestingly, there was almost no talk about the “logged out users” that were such a favorite of Costolo’s. Costolo appeared to have largely given up on logged-in user growth, but Dorsey doesn’t seem to have done so.
  • Realism about the product itself and its shortcomings. Dorsey clearly sees a lot of value in the product as it is today (as do I and millions of others) but as I’ve written before, it’s really not a good fit for the users Twitter wants. As Dorsey put it, the product isn’t immediately compelling to the new user and takes a lot of work to become so, which drives the high abandonment rate.
  • A focus on the users of Twitter first and foremost — Costolo often seemed to talk far more about advertisers and building a media company and so on far more than benefiting users, but Dorsey seems more focused on the users, and with the advertising side actually going very well right now, it’s about time someone put the users clearly first again. The key challenge here is to balance the needs of two very different groups of users — the users it has today, and the users it wants to add. Their needs — and the product they want to use — will be very different.
  • Clarity of vision about what Twitter should be — Dorsey’s sentiment was that Twitter should be “as easy as looking out of your window. It should show you what’s most meaningful in the world, first, before anyone else, straight from the source. And keep you informed and updated throughout your day.” That’s actually a great vision of what Twitter is for many people, and what it needs to become for many others, and importantly it’s user centric rather than some vague vision of a media platform. The other side of it was mentioned too — Twitter as a communication platform — “the most powerful microphone in the world.”

Many of the same challenges remain

However, the market reacted to the content of those remarks from Dorsey and from the others on the call, which were frank but also downbeat about the near-term prospects of Twitter. User growth is indeed very bad; engagement remains low, with a DAU/MAU ratio far lower than Facebook’s, even in Twitter’s top markets; there is no immediate prospect of these things changing, although Dorsey has a plan to do so over the medium term. Monetization, meanwhile, was phenomenal again, and drove significant growth in revenues and beating analyst estimates for the quarter. It looks like Q3 will be strong on revenue growth again if the guidance is to be believed. But as I’ve said before, better monetization can only carry you so far as long as user growth is lacking, and getting user growth going again has to be priority number one now that the ad side is ticking over well.