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Twitter is adding users, but its biggest problems still remain

Twitter is adding users, but its biggest problems still remain


The social network is shifting to video

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From a financial perspective, Twitter's narrative has been relatively straightforward since it went public in 2013. The company has always struggled with user growth. It couldn't — and never likely will — grow at the pace or to the magnitude of Facebook, Snapchat, or WhatsApp. But Twitter has in the past been capable of growing the amount of money it makes every quarter. That narrative is changing, and it's not looking good for the company. Today, Twitter is having trouble gaining users and making money from displaying ads to those users.

In its fiscal second quarter earnings report released today, Twitter says it added 3 million users, about 1 million more than Wall Street was expecting. The service now counts 313 million total monthly active users. It also posted profit of 13 cents a share on revenue of $602 million, which is better on EPS and yet worse on revenue than what Wall Street was looking for. Analysts surveyed by Thompson Reuters had Twitter at a profit of 10 cents a share on revenue of $607 million. The big takeaway, however, is the year-over-year percentage growth of its revenue, which at only 20 percent is at its lowest since Twitter went public. A year ago, the figure was 61 percent. Two years ago, it was 124 percent.

Twitter's stock is down nearly 10 percent due to lower than expected guidance for Q3

This situation may only get more dire. In its forward-looking statements for the third fiscal quarter of 2016, Twitter says it expects revenue of about $590 million to $610 million, which is far lower than the $678 million analysts expected Twitter to forecast. As a result, the stock took a steep dive. It's now down nearly 10 percent, hovering just above its all-time low. It's clear Twitter needs to figure out how to grow its user base as well as court advertisers to spend more money on its platform. How it does one without the other is a puzzling question.

So it would appear the company's turnaround plans are still on very shaky ground. CEO Jack Dorsey is now entering his second year at the helm trying to turn Twitter into a destination new users might enjoy visiting and advertisers might spend on. The flurry of changes since the co-founder retook control have been numerous: an algorithmic timeline that shows tweets out of order; a plan to expand the character limit for tweets; a handful of anti-harassment measures; the Moments tab; and increased investment in live-streaming with its standalone Periscope app.

Yet nothing has had a substantial impact on Twitter's growth. At this point — with the Democratic convention underway and the Olympics kicking off next month — the company's video-streaming ambitions are the only bright spot it has to highlight. Advertising dollars are shifting to video, and Twitter is desperate to compete with Snapchat and Facebook for its slice of the pie.

Twitter's only bright spot is its streaming video plans

"We've made a lot of progress on our priorities this quarter," Dorsey wrote in a statement. "We are confident in our product roadmap, and we are seeing the direct benefit of our recent product changes in increased engagement and usage. We remain focused on improving our service to make it fast, simple and easy to use, like the ability to watch live-streaming video events unfold and the commentary around them."

Even as it sets its sights on video, Twitter is still in the process of defining its role in the social media landscape. It just launched a new marketing campaign this week fashioning the service as a way to find out "what's happening in the world." In other words, Twitter sees itself as a breaking news engine that digests and distributes information at breakneck speed, regardless of whether it's about global events, sporting matches, celebrity tiffs, or political conventions. Of course, this is what Twitter has always been good at, at least for those who have been steeped in its internal culture for years. The company has been less successful at figuring out how to grow the service beyond its existing user base — and make more money as a result.

Twitter is still trying to define its role in the social media landscape

Because unless you use Twitter for your job or have become familiar with it over a long period of time, you may not have a good enough reason to sign up and continue using it day in and day out. That's precisely why the company is trying to capitalize on its role as a way to converse about live events in real time. Twitter wants to be the digital, forward-thinking equivalent of live television, and it's been scooping up select streaming rights from big sports organizations and TV networks over the last year to make the transformation. More recently, the company acquired streaming rights from CBS News to air the Democratic and Republican conventions live. Just this week, Twitter announced a deal with the MLB and NHL to stream baseball and hockey games. These deals capitalize on both the exclusivity and real-time nature of the events, giving Twitter an edge over competitors when it comes to securing lucrative ad deals.

This past quarter is Twitter's first since landing its deal to stream the NFL's Thursday Night Football games back in April, but those games won't start airing until September. Now, the company has to prove its plan to court both users and advertisers with streaming video is an achievable one.