If Elon Musk does eventually take over Twitter Inc. he will quickly discover the one feature he’s disparaged the most, bots, are the key to the platform’s ongoing growth. Musk may also be glad to see that its main rival in ephemeral social media, Snap Inc., doesn’t even have that same “problem.”
Both companies reported earnings last week and similarly disappointed investors. On paper, Twitter’s performance was worse. Revenue was 11% lower than expected and operating loss missed estimates by the equivalent of 35% of sales. 1 At Snap, the figures were 2.8% and 21% respectively. And yet Snap was punished with a 39% drop in its shares on Friday, while Twitter closed 0.8% higher.
It’s not an exaggeration to say that Snap investors tend to overreact. Its shares move by an average 20% in either direction after earnings while those of Twitter swing 11%, according to data compiled by Bloomberg. This trend was in place well before Musk announced plans to buy the latter.
In the broad collection of internet and social media companies, Snap and Twitter are most alike. While Meta Platforms Inc. (Facebook, Instagram) and Alphabet Inc. (YouTube) can be considered rivals for attention and advertising dollars, neither are single-product companies that are highly dependent on the short attention spans of their audience. ByteDance Ltd.’s TikTok may be more analogous, but its parent company gets revenue from multiples streams thanks to a catalog of China-focused products like Douyin and Toutiao.
On Twitter, users publish short messages of up to 280 characters — sometimes adding images, videos or links — which remain on the platform forever, but are most viewed soon after posting. Snap is highly visual and even more immediate, with public posts and direct messages often vanishing within a day thanks to the disappearing message feature around which the product was built.
What sets them apart from each other, and arguably makes Twitter more resilient, is two distinct differences. First, Twitter benefits from big influential users. President Donald Trump used it as a tool for new policy announcements, before he was banned following the Jan. 6 riots at the US Capitol. Musk was already a prolific user when his infamous 2018 “funding secured” tweet led to him being saddled with a Twitter sitter. Although they were already famous, both Trump and Musk used the platform to get even more attention.
While plenty of people are Instagram famous, or got discovered on TikTok (Lil Nas X) and YouTube (Justin Bieber), you’d be hard-pressed to name any celebrity who got big on, or drove traffic to, Snapchat. Although the prospect of losing a celebrity has made investors panic.
Investors are more willing to forgive Twitter’s poor earnings track record because it’s the platform they also use and can’t imagine a world without it.
Yet another important difference between Snap and Twitter occurs behind the scenes. For at least a decade, Twitter has allowed software developers to tap into its data feed through an application programming interface (API). This lets anyone build a bot to not only post automatically, but download reams of information on past tweets for analysis. Snap also offers an API but largely geared toward making it easier for corporations to build and publish better ads. It makes “substantially all” of its revenue from advertising, while its side business in hardware is “immaterial.”
Musk, however, doesn’t like bots and alleges that there’s far more of them on Twitter than the company reports. There’s little evidence to support the Tesla Inc. chief’s claim, but he’s using it to try and renege on a deal to buy the company for $44 billion.
The billionaire does have a point, though: Twitter bots can be annoying, and harmful. Automated accounts pushing cryptocurrency scams and harassing human rights activists are an issue Twitter needs to do better to address. But his complaints don’t adequately delineate between good and bad bots, and don’t seem to make mention of the difference between those fake and authenticate accounts that are not automated.
In reality, brands, media outlets, academics and opinion columnists can all use Twitter’s API on a limited basis for free, but heavy users are required to pay for more access. And they’re increasingly choosing to do so. In the June quarter, this business accounted for almost 9% of revenue. That doesn’t sound like much, but the contribution is increasing and growth of nearly 7% for that division was much quicker than the 3% it posted for ad sales. Twitter also recently released a more powerful version of its API and has plans to broaden the ways in which its platform is used — from weather updates to traffic information — so that it would start to look more like a mobile operating system than a mere social media outlet.
That approach gives Twitter an upper hand on Snap, which remains singularly focused on advertising at a time when inflation is rising and the global economy is slowing.
Sure Twitter’s business model means there’ll always be bots on the service. But right now, that’s a problem Snap investors wish it had.
Bloomberg
