Twitter is renewing focus on targeting ads at users using Topics and other data it collects, CEO Jack Dorsey and CFO Ned Segal revealed during the earnings call for Q3FY20 on October 29. Although Segal said that he had “nothing new to report” on non-ad revenue related products, which are the “#1 company priority”, commerce is something the company is looking at. In Q3FY20, at 86.32% ad revenue ($808 million) formed the bulk of the platform’s revenue share.

Twitter’s monetisable daily average users (mDAU) grew by 29% YoY, from 145 million in Q3FY19 to 187 million in Q3FY20. mDAU grew by only 0.54% QoQ from 186 million in Q2FY20. This growth, was driven by external factors such as conversations around COVID-19, the run-up to US elections, and other events, the company said. The platform also saw “double-digit growth rates” in all top 10 markets.

Renewed focus on revenue through ads

Twitter noticed a 19% YoY increase in ad revenue in the last three weeks of Q3 (end of September) even though last two weeks of Q2 (end of June) saw a 15% YoY decrease. Even though its ad engagements increased by 27% YoY, its cost per engagement decreased by 9% YoY due to price decreases across most formats. A “sizable majority” of Twitter’s advertising revenue came from large to mid-tier customers. The platform expects the “self-serve” channel for small and mid-sized businesses to grow in early 2021 as it devotes more resources to it.

The other major source of Twitter’s revenue is a category that it calls “data licensing and other revenue”, which accounts for 13.68% of all revenue. The platform’s largest customers renewed their data licensing deals for multiple years.

Impact of Apple’s new policy on taking explicit consent from users for activity tracking: Changes in the ad tech and personalisation industry, such as “the way device IDs get to be used on iOS devices”, will level the playing field around personalisation, Twitter CEO Jack Dorsey said. He was referring to a change in iOS 14 through which developers will have to seek explicit consent from users if they want to use the phone’s unique code — called identifier for advertisers (IDFA) — to track users’ activities on the phone. Apple’s delay in making this change has also meant that Twitter has delayed its suite of products.

Suite of products to promote mobile apps delayed again

Segal listed a number of reasons for delaying the launch of its revamped MAP (Mobile App Promotion) suite of products that would aim to help advertisers promote mobile apps on Twitter to 2021:

  1. Apple delayed its IDFA related change to Q1FY21: The microblogging platform wants to learn the specifics of this change, Segal said, to think about how it and other platforms and advertisers would adjust to it.
  2. Making changes to the product itself: The company is still making changes to MAP on the basis of the pilot projects it launched this year, Segal said.

How Twitter is going to use Topics to deliver targeted ads

Both Dorsey and CFO Ned Segal maintained that Twitter has historically not leveraged a lot of “signal”, or data. The aim is to use “parts of the surface area of Twitter” that the company has not historically monetised, Segal said. To that end, Twitter has been building a number of products to streamline its advertising processes, including building a new ad server.

The company plans to use its Topics feature — 70 million people currently folllow 5,100 Topics —, which allows users to follow their specific interests, to serve more personalised ads. Dorsey said that Topics give Twitter “much stronger signal” since they are intentionally chosen by users. He also mentioned that the platform had observed that people were staying longer on the site as they found more relevant topics. Although it went unsaid, it is clear that Topics are a way to monopolise users’ attention.

“There just is more data available to us, and that helps us refine our models and find similarities to that we can show compelling ads to people as well.” — Twitter CFO Ned Segal

In Q3, the company was able to reduce “click leakage” and increase impressions on popular ad formats, Segal said. Twitter’s video ads formed the majority of the ad revenue in Q3FY20, the company said in its letter to shareholders, but did not specify the share.

Effect of COVID-19 abates

As COVID-19-related operational constraints receded in Q3, allowing Twitter to incur more revenue-related expenses. Its costs rose due to infrastructure-related expenses, higher traffic acquisition costs and higher personnel-related costs. Research and development expenses grew by 17% YoY to $209 million primarily due to personnel-related costs. Lower travel, facilities and related expenses offset the high personnel-related costs.

In August, the company had earmarked $150 million as a fine for a Federal Trade Commission (FTC) probe into improper use of users’ phone numbers and email addresses for targeting ads at them. This fine was subsequently included in the statement for Q2.

Impact of US election

Twitter has said that advertiser behaviour in Q4 is hard to predict because of the US election. For instance, in Q2, due to “US civil unrest”, ad spending reduced but recovered later. Segal specifically referred to Black Lives Matter protests in the earnings call to show how advertisers pause or reduce ad spends when “more important discussions [are] happening” on Twitter. However, he added that most companies increased ad spends thereafter “to catch up” and spend the budget they had set aside for Twitter.

Operational numbers

  • Average mDAU: 187 million (up 29% YoY and 0.54% QoQ)
    • Average US mDAU: 36 million (up 20% YoY and steady QoQ)
    • Average international mDAU: 152 million (up 32.17% YoY and 1.3% QoQ)
  • Total ad engagements increased by 27% YoY
  • Cost per engagement (CPE) decreased by 9% YoY
  • Twitter increased the number of Topics to more than 5,100 (up 25% QoQ) which were followed by 70 million people (up 40% QoQ).

Financial numbers

  • Revenue: $936 million (up 14% YoY)
  • Net income: $29 million (down 21.62% YoY)
  • US revenue: $513 million (up 10% YoY)
  • Japan revenue (second largest market): $132 million (up 3% YoY)
  • International revenue: $424 million (up 18% YoY)
  • Advertising revenue: $808 million (up 15% YoY)
    • US ad revenue: $428 million (up 11% YoY compared to a 25% YoY decrease in Q2FY20)
    • International ad revenue: $381 million (up 20% YoY compared to a 20% YoY decrease in Q2FY20)
  • Data licensing and other revenue: $128 million (up 5% YoY)
  • Costs and expenses: $880 million (up 13% YoY)

Press Release | Financials and other metrics | Earnings call transcript | Letter to Shareholders | Form 10-Q