Could declining user numbers actually be good for Twitter?

By Ellen Daniel

Twitter may have made its first annual profit since it began 13 years ago, but it isn’t all good news for the social media site.

Despite reporting quarterly revenue of $909m, up 24% year-over-year, Twitter may have a problem on its hands. Twitter’s quarterly results for Q4 of 2018, published yesterday, reveal that monthly user numbers are falling.

Twitter’s quarterly results showed that monthly active users fell to 321 million in the fourth quarter from 326 million in the third quarter. The number of monthly active users has fallen for the last three quarters and is now at its lowest in two years after a period of slow growth. This means the site has said farewell to 15 million monthly users since numbers started to decline.

As a result, the company has decided to stop sharing this metric, and will instead share the number of monitisable active daily users.

Following the release of Twitter’s quarterly results, the company’s share price fell by almost 10%. This suggests a decline in user numbers is a concern for investors, as well as the fact that revenue forecast for the next quarter is lower than predictions.

By means of comparison, Snapchat’s quarterly report released this week revealed it had 186 million daily users, finally putting an end to its decline. Instagram, meanwhile, has more than 500 million daily users.

Is this the beginning of the end for Twitter?

Are users simply falling out of love with Donald Trump’s social media platform of choice? From Twitter’s perspective, the falling numbers can be explained in part by a change of metrics.

The company has defended its falling user numbers by claiming that the way it measures daily users as “not comparable to current disclosures from other companies, many of whom share a more expansive metric that includes people who are not seeing ads”. It has reported the number of ‘monetisable’ daily active users, or the number of users that advertisers can reach, meaning a direct comparison may not be possible.

However, Richard Holway, Chairman at TechMarketView believes that decisions to stop reporting certain metrics is a sign that the company may be in trouble:

“You know, just like Apple, when a company is ‘running scared’ as Twitter have announced they will now stop reporting user numbers – just like Apple recently announced they would stop reporting iPhone unit sales. Basically they will both strive to increase revenue per user/unit to compensate for a drop in user/unit sales. Not sure if that is sustainable.”

The introduction of general data protection regulations in the EU could have also impacted user numbers, with more limitations on the number of email notifications Twitter can send to users.

Others have suggested that Twitter is struggling to keep up with the increasingly diverse offerings other platforms have invested in. Features such as the Stories format introduced by Facebook and Instagram have received huge engagement. Twitter on the other hand has kept its format relatively unchanged over the years, shying away from more interactive, visual content.

Peter Watson, Managing Director of Distract believes that Twitter needs to do more to engage its users, otherwise advertisers may take their business elsewhere:

“The likes of Facebook and Instagram are leading when it comes to this, at the moment, Instagram Stories is an example of innovation taking hold. More people are engaging with this section of their product than ever and advertisers are also getting a great deal.

“Couple the whole-screen advertising space with the fact you can set ads to only cost advertisers cash if users swipe up to see more and you have a winning concept. The question you must ask is, why hasn’t Twitter innovated in a similar way?”

Bot crackdown

However, this decline may have been self-imposed. In the past, Twitter has come under fire for not adequately policing hate speech or bot accounts on the site, and as a result it appears to have stepped up its efforts to clean up the platform.

According to The Washington Post, in May and June of last year Twitter reportedly suspended around 70 million accounts in an ongoing attempt to reduce the number of spam or suspicious accounts, with many more suspended in the following months.

In its letter to investors, Twitter said that “improving the health of the public conversation on Twitter” had been a key priority during the quarter, so a decline in monthly users may be a temporary sacrifice necessary for a stronger platform moving forwards.

Yuval Ben-Itzhak, CEO of Socialbakers believes that in the long-run, cleaning up its act may benefit the site, making it more attractive to both advertisers and users:

“Twitter’s Q4 earnings may have met with mixed reactions from the market, but they are a clear sign that the work Twitter has been putting in to cleaning up toxicity in its environment is paying off. Users and advertisers alike have responded well to the steps the platform has taken to remove fake and suspicious accounts – and that should be seen in their numbers going forward.”

The users that remain are those that have meaningful engagement with the site, meaning that the decline in numbers may slow in the coming quarters, and new figures may be a more meaningful reflection of the number of human users on the site, rather than a number inflated by bots.

With Twitter’s quarterly results showing that monetisable daily active users increased by two million, the engagement the site is getting may be a matter of quality over quantity.

Josh Krichefski, CEO at MediaCom believes this is the case:

“Twitter’s strong Q4 revenue growth comes down to three key things: its commitment to cleaning up the platform; its investment in new media partnerships; and its renewed focus on building more engagement and conversations between users. And the platform is clearly putting quality not quantity at the heart of its future growth plans. Its new measurement strategy is by no means the typical ‘vanity metric’ that we in the industry are used to seeing.”

Moving forward, Sotirios Paroutis, professor of strategic management at Warwick Business School, believes that Twitter will have to keep pace with innovation to counter falling numbers in the upcoming quarters:

“Twitter has delivered a number of product innovations, for example around video, and its financial performance is improving. Going forward, Twitter will need to keep up the pace of innovation, keep delivering meaningful changes to their user experience and take steps to foster healthier public conversations to stay relevant in a competing social media space.”

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