With ad revenues falling, Twitter confirms it is looking at other revenue streams

Twitter CEO Jack Dorsey said Thursday that the company is actively exploring ways to monetize its user base, including possibly adding a subscription product, following a significant drop in advertising revenue during the second quarter.

Speaking during the company’s Q2 earnings call, Dorsey said there will likely be some tests around new revenue products this year, but stressed that any new model would not take away from the advertising that comprises more than 80% of its revenue.

“We want to make sure that any new line of revenue is complementary to our advertising business,” Dorsey told analysts. “We do think there’s a world where subscription is a complement, [and] we think there’s a world where commerce is complementary.”

In a letter to shareholders, Twitter said that it does not expect any revenue attributable to these activities in 2020. “[Y]ou may see tests or hear us talk more about them as our work progresses,” it said.

Rumours first surfaced that Twitter was considering adding a subscription model earlier this month, when it ran a job listing for a software engineer for a subscription product codenamed Gryphon.

Dorsey, however, stressed that the company has set a “really high bar” for when it would ask consumers to pay for its product, adding that it is in the “very, very early phases of exploring.”

Twitter’s second quarter revenues fell 19% to $683 million, with Dorsey saying the social media company continues to experience headwinds created by lower advertising demand stemming from the global pandemic and civil unrest.

Advertising revenue for the quarter fell 23% to US$562 million, with Twitter noting that  it was seeing a “gradual, moderate recovery” throughout most of the quarter with the exception of late May to mid-June—when many brands slowed or paused spending on the platform, a spillover from the #StopHateForProfit ad boycott that primarily targeted Facebook but also swept up other social platforms.

Twitter said that demand “gradually returned” as the protests subsided. Ad revenue in the last three weeks of June fell a more moderate 15% on a year-over-year basis, the company said.

Video ad products continue to account for the bulk of its ad revenue, with Twitter noting a shift from brand-oriented ad formats to direct response products. Large to mid-tier companies represent a “sizeable majority” of total revenues.

Kunal Gupta, CEO of digital media technology provider Polar, said that the ad revenue decline could potentially indicate how the platform was seen as a “nice to have versus must-have” for advertisers during the pandemic.

And while Twitter executives talked at some length about their investments to improve direct response ad capabilities, Gupta questioned its ability to compete with its larger rivals. “I still do not see how they will compete with Facebook [and] Google’s scale and data here,” he said.

Twitter grew its monetizable daily active users by 34% to 186 million during the quarter, the highest quarterly year-over-year growth since introducing the metric in 2016.

In the letter to shareholders, the company said that the growth was driven by factors including the continued shelter-in-place requirements and increased global conversation around the COVID-19 pandemic and other current events.



Chris Powell