July 24, 2020

Breakingviews: Twitter user growth trumps ad slide in long term

by Breakingviews.

The pandemic is bad financially for Twitter today, but it’s good news for tomorrow. Bored consumers flocked to the $29 billion social network in the second quarter as they sought news about protests, the spread of Covid-19 and the upcoming presidential election. What Twitter calls monetizable daily active users surged 34% year-on-year to 186 million in the period. That dragged costs up. Advertisers meanwhile pulled in their horns, so revenue fell 19% compared to the same quarter last year. The result was an operating loss, but investors shouldn’t be too worried.

That’s because Twitter’s long-run problem has always been finding new devotees. While Facebook had 1.7 billion daily active users in March, the platform run by Jack Dorsey can still only claim just over a tenth as many. These figures aren’t exactly apples to apples, but they go a long way to explaining why Facebook’s market capitalization is more than 20 times Twitter’s.

Twitter’s service is often mystifying for new users, but it’s also addictive once people figure out who to follow and get comfortable with the rapid flow of information, humor, insults and gossip. In that light, the user increase is a plus for the future of Dorsey’s business. It’s presumably why investors pushed the company’s stock price up 5% or more on Thursday morning to approach its 2020 high, reached in February before the pandemic took hold.

When the impact of the coronavirus fades, advertisers will eventually go back to spending. And many of Twitter’s new users will stick around, giving the company more opportunity to sell ads. High-profile hacks like last week’s incident, activist campaigns and debates over undesirable content will always create drama. But Twitter’s user growth should trump its advertising slide over the long run.

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