Twitter says it overcounted users for 3 years as its ad revenue shrinks for 4th straight quarter
Twitter’s Q3 2017 earnings report featured many declines, from total revenue to ad revenue to historical monthly user counts.
There was a lot of shrinkage in Twitter’s Q3 2017 earnings report released on Thursday. Not only did the company’s total revenue and advertising revenue continue their declines, but Twitter admitted that its monthly active user counts have been inflated for three years.
Since the fourth quarter of 2014, Twitter has mistakenly counted sign-ins to others’ apps via its passwordless authentication service Digits as Twitter logins. As a result, the company has been overcounting its monthly users by roughly 1 to 2 million users in recent quarters. The company only reported the actual miscounts for the past three quarters and cited its data retention policies for not adjusting the numbers for prior periods.
Here is how many monthly active users Twitter miscounted in the respective quarters, in total and by region.
- Q4 2016
– Total: 1 million
– US: 0
– International: 1 million
- Q1 2017
– Total: 2 million
– US: 1 million
– International: 1 million
- Q2 2017
– Total: 2 million
– US: 0
– International: 2 million
The measurement error mars what would have been an otherwise positive earnings report, at least when it came to Twitter’s audience size. After adjusting for the inflation, Twitter’s total monthly audience grew by 4 percent year-over-year to reach 330 million people. And its US-only count grew by 3 percent year-over-year to match its previous peak of 69 million, which it hit in Q1 2017.
Twitter also said that the number of people using its social network daily increased by 14 percent, but the company once again did not provide the actual number. You’re likely wondering whether you can trust Twitter’s daily user count. According to Twitter, you can. “DAU [daily active users] were not affected,” the company said in its letter to shareholders published on Thursday (PDF).
Continued revenue declines
Aside from the three-year measurement error, Twitter’s earnings report echoed its other recent ones. The company’s business continues to spiral downward.
For the fourth straight quarter, Twitter’s advertising revenue declined year-over-year, dropping by 8 percent to $502.8 million. And for the third straight quarter, Twitter’s overall revenue also declined, down 4 percent to $589.6 million.
Revenue from ads served on Twitter has dropped year-over-year for each quarter since Q4 2016. In Q3 2017, that revenue fell by 7 percent year-over-year to $455 million. The company did not detail any reasons for its owned-and-operated ad revenue decline.
The on-Twitter ad revenue decline is especially puzzling because Twitter attracted more money from its biggest advertisers and from its self-serve advertisers in the quarter.
During the company’s earnings call on Thursday, COO Anthony Noto said that the company’s top 100 highest-spending advertisers spent 23 percent more money on Twitter’s ads in Q3 2017 than they did in Q3 2016. Then, on the other end of the spectrum, revenue from Twitter’s self-serve ad-buying tool — which caters to small- and medium-sized advertisers — also increased in Q3 2017, though a majority of that revenue came from 5 percent of the advertisers using the self-serve tool.
The discrepancy could indicate that Twitter is struggling to get mid-major brands to spend more money, or that its smallest advertisers are not spending as much, or both.
In other words, Twitter has a demand problem. Unlike Facebook, which is running out of room for ads on its social network, Twitter has more space for ads than advertisers to buy them.
“We have some inventory that’s not being sold,” said Noto said during the company’s earnings call. He later added, “[W]e do have more room in ad load globally and in the US.”
A possible programmatic solution
As a result of its unsold supply, Twitter is looking to attract advertisers who aren’t necessarily demanding Twitter’s inventory. Earlier this year, Twitter began selling some of its owned-and-operated inventory through its MoPub mobile ad exchange. On Thursday, Noto said the company continues to explore ways to offload its inventory programmatically and is “negotiating a number of partnerships with DSPs [demand-side platforms, or automated ad-buying tools that advertisers use to execute their programmatic buys across various supply sources].”
Putting its inventory up for auction alongside other publishers’ inventory has pros and cons for Twitter. On the one hand, it risks commodifying Twitter’s inventory and audience. It also has the potential to cannibalize its ad sales if brands determine that they can buy Twitter’s ads for less money through ad exchanges than through Twitter’s own sales team or ad-buying tools. On the other hand, any increase in demand could boost Twitter’s ad prices.
For each quarter since Q3 2015, Twitter has gotten people to engage with its ads more but has made less money for each of these engagements, which are defined as video views, retweets, likes and link clicks. In Q3 2017, the number of times people engaged with ads increased by 99 percent year-over-year, but the average amount of money advertisers paid per engagement decreased by 54 percent year over year.
If Twitter is able to fill more of its inventory and continue to get people to engage with its ads, it may be able to create more competition among advertisers, compelling brands to pay more for those ads and possibly also helping its sale of ads on non-Twitter properties.
The TellApart albatross
Like the rest of Twitter’s ad business, the company’s off-Twitter ad business has been struggling for a while. Its off-Twitter ad revenue has not grown year over year since Q2 2016. That didn’t change in Q3 2017. This quarter, off-Twitter ad revenue declined by 17 percent to $48 million, its lowest mark since Q2 2015. Twitter continued to blame the decline on TellApart, the retargeting platform that it bought for $479 million in April 2015 and decided in April 2017 to shut down.
“We saw solid performance from the Twitter Audience Platform (TAP) in the quarter offset by a $20 million year-over-year decline in TellApart,” said Twitter in its shareholder letter, marking yet another example of something positive being overshadowed by something negative.