US ad revenues collapse. Twitter cuts costs to manage its decline.
Twitter reported its first quarter “earnings” this morning – “earnings” in quotes because, as always, it’s actually a loss, this time of $61 million for the quarter. That’s according to Generally Accepted Accounting Principles (GAAP). Under its own metrics, after taking out the expensive bad stuff and making some other adjustments, worth in total $143 million, Twitter converts this loss to a “non-GAAP net income” of $82 million.
Such miracles happen on Twitters financial statements on a quarterly basis. But more on that “expensive bad stuff” in a moment.
Behind its usual slew of dazzling homemade metrics, Twitter also reported a less dazzling reality: global revenues dropped for the first time ever on a year-over-year basis, by 8% to $548 million. In the US, revenues plunged 13%!
Why? Its side business is doing well. Revenues from “data licensing + other” – is that where it’s monetizing user data? – rose 15.6% to $74 million.
But advertising revenues, the core of its business model, are collapsing, particularly in the US.
Advertising revenues dropped 10.7% year-over-year globally to $474 million. While international ad revenues inching up 1% to $190 million, ad revenues in the US plunged 17% to just $284 million. In other words, Twitter in the US, in terms of revenues, is dying.
“There is still work to be done to translate” all these dazzling homemade user metrics “into revenue growth,” the report observed laconically. When a young company that went public with enormous hype a few years ago is doing what IBM is doing – presiding over declining revenues – it’s not a sign of vibrant potential.
But, seeing the writing on the wall and wanting to hang on for a while longer, Twitter has turned into a cost cutter. It has laid off a bunch of people, has lowered its footprint in San Francisco by subleasing a big part of its office space, and has trimmed expenses elsewhere, which produced some results:
- Research and development expense down by $27 million
- Sales and marketing expense down by $93.6 million
Total “expenses and costs” from operations dropped by $65 million. So despite dropping revenues, its loss from operations fell by $19 million. That’s the cost-cutter model.
But how did Twitter get from a GAAP net loss of $61 million to “non-GAAP net earnings” of $82 million – a $143 million swing? Its “non-GAAP net earnings” exclude, among other things, these goodies worth in total of $241 million:
- Stock-based compensation $117 million. This is down 22% from a year ago, as part of its overall cost cutting program and layoffs. While this is not a “cash” expense, it’s a real expense (employee compensation) and plays out in form of stockholder dilution.
- Depreciation and amortization expense of $103 million
- Interest expense of $18 million (since interest expense doesn’t matter)
- Provision for income taxes of $3 million
So how is Twitter doing in the shareholder dilution department? The number of shares outstanding jumped from 691.6 million a year ago to 722 million in Q1 2017. That’s 30 million additional shares issued in one year, a result in part of its stock-based compensation plans, and its ongoing program of shareholder dilution.
“We’re proud to report accelerating growth in daily active usage for the fourth consecutive quarter, up 14% year-over-year,” explained part-time CEO Jack Dorsey. He did concede that the company was facing “revenue headwinds,” which is the single most important metric of long-term potential.
In other words, Twitter is doing what IBM has been doing for years: it’s cutting costs in face of falling revenues in order to hang on for a while longer. It’s managing its own decline.
But don’t despair. It was all “better than expected” – or at least some of the dazzling metrics were “better than expected” – and Twitter shares jumped 10.5% this morning to $16.21, though that’s still down a bunch from its IPO price of $26, and down nearly 80% from its all-time high.
So short Twitter? But note that in this crazy market, the bloodletting among Tesla shorts has become legendary. Read… 4 Short Sellers Explain Why They Target Tesla – But Don’t Try to Do this at Home
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The logic of illogic once again overcoming reality and common sense .
Well I’ve stopped using Facebook about a year ago and it’s the best thing i did. I’m free to live my life without distraction
I never got onto Facebook, and when I heard several years ago that anything you post, say, your nephew’s new kid’s pictures, becomes their property, that made me really determined to never go on Facebook.
As for Twitter, what’s wrong with email? Email has been invented, you know. I’ve never sent a “tweet” and will resist doing so unless it becomes necessary for some reason (“Sorry sir, you can’t shop at this store unless you send a tweet” etc.)
I don’t even understand why everyone wants to communicate using text instead of a simple phone call. Have people become afraid of their own voice?
I don’t get how anyone makes a thin dime from any of this, so the idea of “Twitter” having any kind of an office or money for lunch leaves me incredulous.
You realize that what you say here is probably property of wolfstreet?
If you don’t see the value in texting information, it’s probably because you aren’t social enough to benefit from it and your work doesn’t benefit from it. I didn’t text until I had a use for it and now it is the perfect way to communicate some information – whereas logging in and listing to a whole VM or Email just to see the word “Yes” to answer a question you had or to get a group to agree to a new meeting location at the last minute is time consuming and slow. Text is fast and direct. Like a page.
I don’t use twitter but I’ve explored it and think using it socially/entertainment-wise (bleh) or for news (yay) are it’s two features. If I rode public transport each day, I would definitely sign up for their tweets, texts, or full-on app. You never know when there’s going to be another suicide that delays caltrain for hours – right? Happens too frequently. That’s the value – as opposed to 3am potty tweets from our fearless leader.
Twitter doesn’t make a thin dime. :)
Remember when SF mayor practically GAVE twitter office space in the city to get them to set up HQ there? Huge savings for twitter – gentrified that neighborhood and drove up rents for everyone else who didn’t get evicted. Investors seem to love throwing money at twitter – hence the lunches and swanky office space. The only pay-day investors will get, in my opinion, already happened with the IPO and granting of equity. Part-time CEO? Really?
Google and FB who have lots of rich, user data allow advertisers to finely target their viewing audience (while maintaining user privacy). So, advertisers pay for fewer useless ads and the social media platform gets decent prices while thinking they’re helping users avoid ads of little interest to them. It’s still ads.
I actually secretly think text is great; almost as cool as Morse code. But I’ll need a smart phone to use it, or figure out how to do it effectively on my flip phone, then yeah I’ll jump aboard the text bandwagon.
Did the same two years ago and I couldn’t believe how liberating it has been; I didn’t feel I’m missing out on anything at all. Practically every day, I see people in the subway or in other public places mindlessly swipe through their feed like an automaton — they don’t like particularly happier.
I am a FB blunderer. I did not realize diff between public and private comment. I asked this gal if that was her real hair color on public space and she kind of freaked on me. OK she has a few issues and she apologized later but at the time I felt like a bushman who found a computer.
Oh god I did it again- not that’s anything wrong with being a bushman.
The internet in general is too much like that. Remember IRC? You’d be typing to someone you’d known a while and felt was a friend, so you’re confiding in them about something, well, their doorbell rings and they have to leave their computer or their connection just drops – it happened all the time – and the next person below them on the “stack” would get the message you were sending to them. Email is not much different; it’s really easy to send to an entire mailing list some confidential thing about poor dear departed Grandpaw and the chicken … thank God this second is not from person experience.
You almost have to think like, “there’s no such thing as a dead mic” with any device newer than the toaster your mother left you, these days.
Got it – but your package and envelopes can get lost in the mail too, opened by wrong person or even stolen. Snail mail has its issues. All forms of communication have drawbacks.
Done the whole learn about privacy settings on FB the hard way too. :)
I really don’t understand the whole advertising model of the Internet. It would seem to me that those wishing to advertise would budget only so much money for the effort. So that with a growing number of websites eager to attract that money, it would get diluted across these websites.
Unless of course advertisers are willing to spend more and more every year. Google is doing great and Facebook came along. Both seem to be making more every year. But Twitter is losing out.
Is Internet advertising really driving that much more business to create a whole Google and Facebook? It doesn’t seem possible to me, but I might not be representative of the general public.
Do people really want to get text messages from Twitter from people they don’t know?
I’ve been in IT for 30 years and none of it makes sense to me.
I agree. Also as internet users have matured over the years, people are less likely to click on an add link by mistake. Also, more and more people are using ad blockers.
I use an ad blocker, not because the ads bother me so much, but because when I go to a site with google ads, my computer starts bogging down.
Funny how a company that makes billions on delivering ads, can’t figure out a way to deliver those ads without destroying the user experience.
I simply avoid a hell of a lot of sites.
For instance, newspapers’ sites are invariably horrible and will give your computer cancer. So, for news I go to Reddit and don’t read the articles linked, I read the comments about the articles which give the same information but it’s in nice plain text.
Bravo….makes no sense to me either, but I am not 30.
I am convinced that the 16 to 36 years olds see things thru rose colored glasses. Heck lets expand that to 16 to 60 year olds who believe that their backs are covered, there will always be a chair to sit in.
Your ‘truth meter’ is the rudder that guides your ship and these companies. If you are told and believe they will be the future Apple, nothing you can show them or say will change that. It is like religion isn’t it? Believe without question or move on.
Look around at all the ‘so called’ organizations that purport to be objective independent and forthright. D.C. is littered with them. Silicon Valley is no different, either is Wall Street.
We have lived with illusion and make believe for so long that we simply do not see it is a stage front made of pretend. It is no secret that all these companies pad their click-thru and ad claims. The question is why no one sees the ship in the harbor in plain site drifting into the rocks, and still buys tickets.
It is called….faith, blindfaith
” It is called….faith, blind faith ”
… or alternatively
1) True Believers ( the worst of the worst )
2) PDVS [ post decision validation syndrome ]
3) EARDS [ entertainment addled reality distortion syndrome ]
Either that or someone’s putting something in their water
Speaking of ‘ Blind Faith ‘ ( the band ) .. this blast from the past sums it up nicely ;
It’s not the advertising model but about the personal data model. It is about virtually OWNING people and that is tremendously powerful. It is more powerful and potentially more dangerous than all traditional mainstream media put together.
My browser has about 10 guarding plugins installed and I don’t see any adds at all. As about social media, don’t touch it with a 10 feet pole. FB is snooping on you even if you are not registered user. So get some FB blocking app, same with Foolgle. You net browsing can be liberated if you put some effort in it. And screw the advertisers
The height of insanity in the markets knows no bounds.
Case in point – Junk bonds, P.I.K. Notes.
Payment in Kind. Which are sold at arms length. What are they?
They allow interest payment deferrals and also allow coupon payments to be made with more debt. In other words, you buy bonds that allow interest to be paid back by issuing still more bonds! Payment in kind.
This when Snapchat has a valuation nearly as large as ebay?
When 70% of GDP depends on the consumer, the five largest companies contributing the most to gains, in the consumer discretionary sector are;
The consumer is overly stuffed. No more wriggle room. Most of Main street live and work in fear. You wonder why the reason for huge worker productivity gains without wage increases? Your everyday Main street workers are afraid to go on strike, or even complain about wage and conditions, because they’re just one pay check away from being homeless. The reset will be epic and could be bloody.
Outside of nuclear war, it doesn’t seem like there is nothing out there to derail this insanity. Pretty soon sec earnings won’t exist and everything will be non gap. Take gross revenues and divide by shares outstanding, that will be your eps. There are no financial checks and balances. Every time there are bank problems overseas, they always quietly go away. Rarely any mention here in the USA of the massive debt levels that exist. What can happen to derail central bank bond and stock buying?? That is what’s propping up the financial planet.
I’m curious as to why the SEC allows such NON GAAP nonsense. CAT was even worse. TSLA always a player. It appears they are getting bolder every quarter and a lot of home gamers only hear what comes out of the chearleaders on the tube. Making bad quarters sound euphoric. A lot of people will get hurt from this, and yes it irritates the crap out of me.
GAAP is the law. Anything else is buyer beware as long as it is clearly stated as such. People like to feel smart and non-GAAP makes people think they’re getting over on the stodgy rules that make things look ‘unreal’. After all, the media wouldn’t state ‘exceeds expectations’ if there were anything wrong with non-GAAP. Plus, the financial markets use OPM to exist and they need non-GAAP to keep the sales pitch fresh.
OTOH, Facebook’s YOY revenue growth is 50%. That’s phenomenal – faster than even the pace at which Google grew back in 2007/08 when it’s evolutionary trajectory was on a similar path.
I wonder what Ted Kaczynski thinks of Facebook, given that they are now streaming murders and suicides on the platform in real time.
You do realize FB has an entire division of staff around the world (literally) who work to remove crap that violates their policies as soon as machine and humanly possible – THEN – return it to the site if it was removed or flagged improperly???
What more can you ask for? People gonna film. People gonna stream until they’re stopped. Seems like you’re misplacing self-righteousness or disgruntlement with modernity if you act like meerkat, apple, youtube, ustream, or FB are the ones choosing to “stream murders and suicides”. It’s technology used in different ways by different users. Those smaller, start-up apps likely have far less ability to remove offensive content in a timely manner than larger youtube or FB do.
While you and I can’t figure this out the truth is … Nobody Cares. Most investments are manages by someone else and those people care only about commissions and fees on OPM. Twitter has a great sales pitch and nobody cares about GAAP vs non-GAAP as long as they don’t lose money to the point where they might go out of business. It’s just a bouncing ball to HFT. People like to use Twitter and this rubs off on the value of investments in it.
Complaining about Twitter’s investment value is like moaning to yourself about something somewhere else. Their stock value will be high until the day after they exist as a financial entity. Then it will be worth somewhat less for a while longer.
It has nothing to do with intrinsic value and everything to do with paper flipping and the demand for anything that moves in the financial markets.
Well, actually I care, but then I’m a retired CFO, so what do I know?
When I post that I actually pay attention and make investing decisions on NPV of (estimated) future earnings, I get laughed at.
This humiliates me deeply, and I go back into my cave with my 35-year-old Berkshire Hathaway and 8-year-old Visa investments (ok, actually I laugh and take frequent & expensive vacations, but that’s another story).
The stock market can be played using business-risk-rules or pure casino-gambling-rules. The 90% of individuals who can’t read financial statements and have no real idea of future market conditions shouldn’t be surprised to wake up and discover they own Twitter stock.
If the wealthy people inhabiting the higher one-tenth of One Percent on the net wealth scale wish to persist at this level, they have to stop the lack of rules for capitalism, and publically-traded companies. The fact that shares are traded with little regard to “investment”, sometimes ten or a hundred times a second, means that it is no longer “finance”, it is unvarnished gambling and game-playing. All the touts on message boards such as Yahoo!, they might as well be at the dog track, the horse track.
Is this what we want as Americans?
I never see, in all the onslaught of “Machine Learning” and Artificial Intelligence writings, anyone advocating for doing away with the IRS and State taxation rules and methods, and simply have “Super Watson” iterate the “reasonable” tax owed by millions of corporations, and the 322 million residents of this country. Big savings net for the country.
Is this what we want as Americans?
Presumably you are a member of the 99%, in which case the Oligopoly doesn’t give a damn about what you want, nor do “your” bought and paid for “representatives.”
Boy, have I got good news for you:
1) The upper 1/10th of 1% of wealthy folks DIDN’T GET THERE BY TRADING STOCKS 100 TIMES A SECOND – THEY ACTUALLY BUILT SOMETHING THAT THE FREE MARKET DESIRED TO BUY (i.e. Windows, BMW cars)
2) I fully agree that trading (or spoofing) trades tens/hundreds of times a second is absurd, but it isn’t “capitalism” that allows you to do this – ITS A REGULATORY quirk – the SEC is fully aware this offers unfair advantage, but doesn’t stop the practice (it’s a lot like having the FBI protect you as you rob a bank).
Simply stated, capitalism is simply an individual (not government) being responsible (gains & losses) for their own financial actions. No credible investor claims unfettered capitalism is perfect – it isn’t (no system is – try unfettered socialism). In a modern society, appropriate regulation should constrain capitalism to “ETHICAL FINANCIAL ACTIONS”.
Speaking of Twitter’s physical presence in San Francisco and all of the Ellis Act fraud, rent hikes and special favors that they either caused or correlated with ………………. there is a rally and march at the Federal Building in San Francisco tomorrow at noon. No Trump or City Cuts to Affordable Housing! April 27, 12 noon, 450 Golden Gate.
Why should Federal or San Francisco taxpayers be part of subsidizing your housing?
I am infinitely more worthy and would appreciate Federal & City taxpayers being forced to subsidize my new (expensive) BMW. Let me guess – you’d be unhappy with that…
Trade it for an electric BMW and we all will subsidize it via the $7,500 tax credit.
You got me there.
I think TSLA is in much more need to be subsidized than BMW. How will we get to space if people aren’t buying their cars?
San Franciscans have already subsidized TWITTER with MASSIVE tax breaks – mayor Ed Lee did so to lure them to the city because he has a huge ego and seems to hate working class people living in the city. More tech not paying taxes into the city but bringing workers = more middle and lower class workers moving out. Gentrification. Socially engineered by the mayor. No, that does not get rid of homelessness so don’t say it is inherently cleaning up a neighborhood.
Locals are paying Twitter’s share of taxes. Twitter and its investors should thank “the little people” for that.
There is FAR more corporate welfare going on in this country than most people recognize or are willing to acknowledge.
What does your car have to do with anything? Are you saying you disagree with the idea of citizens wanting to spend a reasonable percentage of their wage on shelter? And possibly have something left over for a car – any car? You do realize that increasing housing costs kills economic activity in most other sectors? That is bad for most business. Bad for most people. Not bad for landlords, current home owners, ideologues who fail to recognize that people do not create wealth in a vacuum. Perhaps you are one of those groups?
I’m afraid you missed the sarcasm.
No, I don’t really expect anybody to help me pay for my car (I’m an adult and I bought one I can afford all by myself).
Kevin describes a system he claims is illegal (…Ellis Act fraud…), and requests Federal & City housing housing subsidy not be reduced (…No Trump or City Cuts to Affordable Housing!…); GUESS WHAT – THAT WON’T STOP FRAUD! The adult thing to do is demand legal action against the fraud and/or move to a place where you can afford housing.
I was engaging in irony…oh, geeze…never mind.
It’s depressing. All these “revolutionary” social network businesses have the same old agenda: selling ad space. And if you know the theories of John Berger, there is nothing neutral about the social impact of advertising. It has created a system of meaning that is the soulfood of capitalism.
Advertising whispers to each of us that we are lacking something crucial—beauty, social status, success, health, a bright future. But there is a product/service we can buy which will make up the difference, transform us into someone glamorous, enviable, secure. Berger argues that advertising short-circuits effective politics because it suggests all real change is personal.
Some 50 years later, I still remember a scene from one of Berger’s films. He holds up a newspaper page containing a newsphoto of starving Pakistanis next to an ad for scented body wash. The very fact that we are accustomed to such jarring contrasts indicates the world view we have internalized. Berger points out that the future we are encouraged to identify with is the world of happy romance depicted in the ad. As for the Pakistanis, they might as well be on another planet whose fate is meant to be very different from our own.
It’s known as “tombstoning” and newspapers never get tired of doing it. Some hilarious examples are always here:
“Depreciation and amortization expense of $103 million”
What ‘physical’ assets does the company own that are even worth that much?
Don’t bother trying to find the answer as the answer would probably be as worthless as the “assets” in the real world.
To me the real value of the company is less than zero.
That raises a good question… Does Twitter have their own server farm for operations (major $$$) or do they just purchase needed services and storage from the cloud? I have no idea.
They probably capitalize software development.
Either that, or they have a lot of expensive company cars & a corporate jet.
It is all very simple. Each advertiser will have a target market. The aim of the advertisement is to attract paying customers for the advertiser’s products and/or services. As a medium for advertisers, Twitter evidently does’t supply enough paying customers to satisfy the advertiser’s requirements. So Twitter either has to attract the sort of customer that does or the advertiser will advertise somewhere else.
Twitter was a novel idea whise novelty has worn off. What Twitter cannot do now is row its own boat: it is not important enough to do that.
Meanwhile, in the real economy (as opposed to Wall Street’s speculative casino), Capital One and Discover just got whacked by a “surprise” rise in credit card default rates. Readers of this blog will not be surprised at all to see tapped-out consumers increasingly unable or unwilling to pay their mounting debts.
Soon enough, they’ll report actual cash compensation for employees to be zero, while stock-based compensation will be 200% higher than last quarter. Then when they still have GAAP losses, the admission will be that it’s all (once again) non-cash numbers causing those fake losses.
The next quarter, they will report that shares outstanding have ballooned to over 1 billion, that they have no debt on their books (and therefore, no interest expense), and are no longer losing money. Except when you look at the GAAP numbers, which will indicate that they are still unable to pay dividends and unable to buy back stock to keep up their employee compensation scheme.
I don’t know where this all ends, but this is not the way to operate a business.
You get this kind of gee whiz financial (non-GAAP) stuff from companies that are not mature enough to make a profit. These used to be the purview of venture capitalists who:
1) understood the market in which the company competes
2) understood the companies business plan
3) have cash & are willing to accept very high business risk to find the 1-in-10 company that paid for the 9-in-10 that failed
Most retail investors (99%?) have no idea what their investment risks are in this arena, but claim to be able to sniff out the next Google.
Most dot.com companies are really stand-alone R&D “proof of concept” ventures; the way the vast majority end is either bankruptcy or getting acquired.
Twitter’s advertising strategy is to set ad rates as high as they can. One ad on Twitter costs around $25, while the same ad on FB can cost up to $10. Who can afford that?
I won’t get into all the segmentation crap that actually takes eyes away from your ad. Nowadays they think we’re so stupid that the “small print that taketh away” is now the big print and sold as a benefit.
I use Twitter, but I don’t like it very much. And I don’t use FB at all.