Twitter Inc.’s shares are rising after another weak earnings performance. While it’s tempting to play down the reaction as just a relief rally after the stock’s recent plunge, there are legitimate grounds to be more optimistic about the social media company. Yes, the perennially underachieving Twitter may have a chance.
Early Thursday, the company reported lackluster audience growth for the three months ended in December. The company’s main user metric — average monetizable daily active usage — came in slightly below analysts’ median estimate. Revenue for the period and guidance for the current quarter also missed Wall Street expectations. On the positive side, the company authorized a $4 billion share buyback.
Yet Twitter’s stock price rose more than 1% after the results. One likely reason is that Twitter said that it saw only a modest impact from Apple’s recent change to privacy settings, which limit marketers’ ability to track user behavior across apps. Unlike Facebook parent Meta Platforms Inc., which relies heavily on targeted advertising, the majority of Twitter’s revenue comes through ads aimed more broadly. Meta said last week that the ad-tracking change would cost the company some $10 billion this year.
Beyond ad revenue, Twitter’s future looks brighter for two key reasons. First, let’s not underestimate the company’s recent leadership change. This was the first quarterly earnings call for Twitter CEO Parag Agrawal, who succeeded Jack Dorsey late last year. The executive said he will be laser-focused on increasing accountability, making quicker decisions and improving product execution.
That’s all music to investors’ ears, who have grown weary of the company’s listless track record. Also, Agrawal will be a full-time CEO, a big improvement over his predecessor Dorsey, who split his duties between Twitter and Block, the digital payments company formerly known as Square. That alone should increase Twitter’s ability to move faster.
Just as important, the company has a promising new initiative: Twitter Communities. The service, which launched last September, allows users to set up smaller interest-based groups away from the main Twitter feed. It’s the company’s take on Facebook Groups or Reddit.
Over the last few months, I’ve been active in several Communities across a wide range of niche interests from gaming and design to technology news. The feature lets users go deep into specific topics. So far, the discussions have been much more substantive than those typically found on the main feed, with much less noise. Almost half my time on the Twitter app is now spent on the Communities tab. If Communities does take off, it will help Twitter make more money with improved ad targeting: If users are active in specific interest groups, they can be fed more relevant ads.
It has been a difficult time for Twitter shareholders. Wall Street has grown more skeptical about the company’s ability to meet its long-term growth targets. Shares of the social media company had declined nearly 40% over the last three months.
But after years of underperformance and stumbles, let’s not ignore what can go right. A new CEO and the potential for a hit product may give Twitter a fresh start.
Bloomberg
