Twitter’s Q1 earnings from last week beat Wall Street expectations on both user and total revenue growth. But ad revenue growth was flat due to a sharp decline in March. Here are three takeaways for advertisers.
March Revenue Declines May Be Sign of What’s to Come
After pulling its Q1 2020 guidance in March and announcing that its quarterly revenues could drop, Twitter surprised investors on Thursday with a year-over-year total revenue growth rate of 3%. Worldwide ad revenues came in at $682 million, which is essentially flat growth (0.4%) from $679 million in Q1 2019. A strong January and February were enough to partially offset the 27% decline the company reported in its ad business between March 11-31.
The company said that the March downturn was “particularly pronounced” in the US, where Q1 2020 ad revenues reached roughly $381 million. The US is Twitter’s largest market.
Twitter didn’t provide Q2 guidance, citing economic uncertainty due to the coronavirus pandemic. In the earnings call, however, CFO Ned Segal told investors that the March 11-31 timeframe can serve as a preview for what to expect for its ad business in April. That suggests that we haven’t yet seen the full impact of the coronavirus pandemic and economic slowdown on Twitter’s business.
In positive news, Twitter said that ad weakness in Asia—which includes its second largest market, Japan—began to subside by the end of the quarter. The region was the first hit by the coronavirus crisis, and many countries there started to ease business and travel restrictions in March. That could bode well for Twitter in the rest of the world, once economies in its other major markets begin to reopen.
But Twitter’s ad business is heavily event driven, and event cancellations as a result of social distancing and stay-at-home measures have clearly hurt its bottom line. The continued suspension of major US sports leagues and postponement of the 2020 Summer Olympics will likely negatively impact its revenues in Q2, as well. When asked, Segal didn’t comment on whether he expected advertising to pick up later in the year if sports return.
Direct Response Is a Top Priority
Facebook has already been a strong direct-response performer for years, and Snap reported in its Q1 2020 earnings that direct response now makes up more than half of its revenues. In that sense, Twitter is playing catch up to its peers.
Twitter said it aims to accelerate its road map for direct-response advertising, beginning with improvements to its mobile application promotion (MAP) ad format. The new offering is currently being tested among a select group of advertisers, and the company said that there will be a phased expansion of the pilot.
Record-High Engagement May Be Temporary
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