Twitter's deal fiasco with Elon Musk has overshadowed its business challenges, which will likely intensify as growth in the advertising market decelerates and the company deals with the operational fallout from the Musk mess.
Why it matters: Musk's initial $44 billion offer to buy Twitter was already an extraordinary premium on Twitter's stock, but it's an even bigger number considering the current market free fall.
Details: Twitter's revenue growth has been slower in the past five years that its other ad-supported peers, most notably Snapchat.
- That's in large part due to its reliance on advertising from big brands as opposed to small- and medium-sized businesses, and its user growth coming mostly from less lucrative markets overseas.
Between the lines: The company has made strides in advancing its ad product over the past few years through investments in video advertising, direct response advertising, and more recently via investments in contextual ad targeting driven by its Topics feature.
- But while those investments helped Twitter grow its ad business 40% year-over-year between 2020 and 2021, the tailwinds in the ad market last year that most certainly contributed to that growth have since died down.
Be smart: Twitter has tried to diversify its business away from advertising revenue by investing in new consumer subscription products, like Twitter Blue and Super Follows.
- Data from Sensor Tower, a third-party app analytics firm, suggests that the company has made around $4 million through consumer spending on the Apple App store and Google Play store globally over its entire lifetime.
- Because Twitter only recently introduced Twitter Blue and Super Follows in 2021, that revenue is likely weighted over the past year.
Yes, but: User growth at the company remains relatively strong, despite the fact that engagement appears to be lagging compared to some competitors.
- The company added 14.3 million monetizable daily active users (mDAUs) in the first quarter of this year, surpassing analyst expectations for the quarter, and bringing its total mDAU count to 229 million globally.
- An internal meeting cited by Reuters suggests the company is gearing up for another ambitious quarter for user growth.
- Still, engagement with the app is critical for yielding stronger ad growth and data from Sensor Tower published this month found only 18% of Twitter's active install users have opened the app every day in Q2 2022, compared to 39% of Instagram users, 29% of TikTok users, 27% of Facebook users and 26% of Snapchat users.
The big picture: Twitter's stock has been on a downward spiral ever since Musk tried to officially back out of the deal, plunging to a two-year low on Monday.
- While executives sounded confident during its last earnings call that the company will be able to hit its stated goal of reaching 315 mDAU and $7.5 billion by 2023, the deal has largely overshadowed the company's optimism.
- Some investors have suggested that the deal has impacted internal morale and investor optimism, hindering progress. Reports cite distractions internally, especially amid recent leadership turnover.
Go deeper: The biggest losers from Elon Musk's Twitter chaos
