Finance

Twitter warns of slowing user growth as pandemic surge fades

Twitter’s user growth fell short of expectations for the second quarter in a row and it warned that it would also slow in 2021 as a pandemic-related boost wears off. 

The San Francisco-based social media company said revenue in its fourth quarter rose 28 per cent year-on-year to a record $1.3bn, beating analysts’ consensus of $1.2bn, which it attributed to the rollout of new advertising formats and targeting capabilities for brands.

Net income rose to $222m, with diluted earnings of 27 cents a share. Twitters shares rose 3 per cent in after-hours trading.

However, average monetisable daily active users — a homegrown metric that counts the number of logged-in users to whom the platform shows advertising — reached 192m, a 27 per cent increase year-on-year. Wall Street had expected that to reach about 194m.

Twitter cited a “small but measurable negative impact” from a number of product, policy and enforcement changes that it introduced ahead of the US election to prevent the spread of misinformation and encourage healthier “thoughtful” discussions on the platform. 

The results come weeks after the platform banned former US president Donald Trump permanently, citing rule-breaching content and the risk that he would wield the platform for inciting further violence after the Capitol riots on January 6. The removal of the avid Twitter user has prompted fears that it could affect the platform’s popularity in the upcoming quarter.

“We are a platform that is obviously much larger than any one topic, or any one account,” Jack Dorsey, Twitter’s chief executive, said on a call with analysts.

In another sign that user growth may be peaking, Twitter said it expected user gains of 20 per cent year-over-year in the first quarter, compared with a 24 per cent growth rate in the first quarter of 2020. It said “the significant pandemic-related surge we saw last year continues to create challenging comps” as it projected “low double digits” growth in the quarters for the rest of the year.

The company also noted that it had finally this week launched a long-promised overhaul to its advertising system, called MAP. The rebuild had been delayed because of Apple’s forthcoming privacy changes which will make ad tracking more difficult. Twitter said it expected a “modest impact” from the iOS 14 update going forward.

Ned Segal, Twitter’s chief financial officer, said the company was researching and testing potential subscription features, as it seeks to diversify its revenue. However, he added that he did not expect such tools to be “meaningful contributors [to growth] until next year”. 

Total costs and expenses would rise at least 25 per cent in 2021, Twitter said on Tuesday, adding it planned to raise headcount by 20 per cent — it ended 2020 with more than 5,500 employees. It projected that full revenues would grow faster than costs.

“If those resources are in the right place, whilst a short-term caveat, it could offer long-term potential in terms of new products, development, security,” said Tom Johnson, chief transformation officer at WPP’s Mindshare.

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