Twitter sees stark drop in their ad revenue
Wednesday 5th August 2020
Like many social media platforms, Twitter is most reliant on ad-generated revenue. In 2019, 86.5% of its revenue originated from advertisements, with the remaining coming from either data licensing or service fees collected from its mobile ad exchange, MoPub (Investopedia). However, on the 23rd of July, the social media company reported second-quarter ad revenues of just $562 million – a 23% decrease compared to the same quarter a year ago (CNN, 2020). This is a worrying figure for Twitter, given that it falls short of the $700 million expected by Wall Street’s consensus.
The current political climate is believed to be largely at blame for this; the devastating death of George Floyd and the Black Lives Matter protests that have taken off since late May have led to advertisers boycotting social media, justified on the basis that brands find it difficult separating themselves from the politically-heavy trending hashtags that Twitter boasts, specifically #BlackLivesMatter and #JusticeForGeorgeFloyd. Further, in comparison to other social media platforms, Twitter carries a sterner approach to political advertising on its platform by banning it altogether. This has resulted in globally known brands like Starbucks, Unilever and Coca-Cola putting a pause on social media adverts for the entirety of June (The Verge, 2020).
Nevertheless, the Covid-19 pandemic has been forgiving to Twitter in other ways: the social media platform saw an increase of 20 million new users in its second quarter compared to the previous three months (The Financial Times, 2020). This figure makes it the “largest year-over-year growth … since Twitter started reporting daily users in 2019” (The Verge, 2020). From this, shares rose by 6% in pre-market trading on Thursday 23rd of July. Thus, while Twitter has struggled with ad-generated revenue, escalating consumer figures provide them with the perfect opportunity to source revenue from their consumers.
In early July, Twitter placed a job posting for their subscription platform codenamed as “Gryphon”. According to CNN, this was followed by a surge in Twitter’s stock, “signalling investor appetite for the company to find new revenue streams.” The social media platform hopes to create an “ad-free experience”, expanding on its 2017 idea with the TweetDeck app that increases convenience and ease of use for Twitter fanatics. However, a spokesperson has emphasised that this is “not a product announcement” but instead merely a “job posting” – thus, it is unlikely that its users will see anything more than a trial conducted for a potential subscription service this year.
Despite this, the social media platform appears eager to follow in the footsteps of others, most notably Facebook in potentially introducing an e-commerce service on its app (see June 22nd Commercial Astuteness briefing - Shopping on social media: the future of e-commerce?). Nonetheless, this will mean that Twitter will have to reconsider its ad-revenue generating model – currently, the majority originates from Twitter’s owned and operated platform, while only a small percentage comes from 3rd party publishers’ websites. This is in stark contrast to Facebook, which largely relies on third-party e-commerce services, like Shopify, in their brand new ‘Shop’ feature.
Overall, the sudden drop in ad-generated revenue is unlikely to be impactful to the platform in the long term. Although, in order to ensure this, Twitter must do the following: firstly, acknowledge that in these politically unprecedented times, majority reliance on ad revenue is unlikely to fare well for them – instead, they should look towards progressing with a consumer-focused business model. Secondly, they must fully address any issues with the platform that may taint their reputation. This is specifically regarding the company’s failure to abide by their “security obligations” (CNN, 2020) which resulted in the recent successful hacking of 36 Twitter accounts, including multiple verified ones.
