Twitter Q2 Earnings: Users Growth Officially Over at Twitter

Even the executives at Twitter have finally acknowledged the companies' biggest issue: a lack of user growth. On the earnings call yesterday, Interim CEO Jack Dorsey spoke about how the current user growth numbers are unacceptable, while CFO Anthony Noto claimed any new increase in users would take "a considerable time". Clearly not something investors wanted to hear, the stock, which was up over 6% after hours, plummeted 12%, opening today around $32 a share. The only positive was a beat on revenue and EPS, though the company still has yet to turn a profit. As the executives seem to be taking a "long road" and focusing on monetization now and growth later, the company could be in some serious trouble. The focus for social media companies in particular, where being cool and hip is highly important, is to get as many users to join as quickly as possible and worry about monetizing their user base down the road. (I've been writing about the issue of user growth since February: Link Here). In my view, this was another terrible quarter for Twitter, a growth company shouldn't care about increasing revenue so soon, the focus should be on user growth, a number that has been slowing for months now. Finally, the executives mentioned the problem, but not in the right way. The rudderless ship looks sure to continue to drift. Below, we look further at the user growth problem.

Monthly Users were up 15% year over year, due to an increase in SMS based users.

User Growth Up? Not so fast.
The small increase that Twitter saw in user growth came from SMS users. So what exactly is an SMS User? Essentially, these are people who sign up for specific text message alerts of tweets they deem important. So a baseball fan may want a text when Derek Jeter tweets his return to the Yankees. These users DO NOT need a Twitter account to sign up for this service. SMS users do not even have to open the Twitter app to access these tweets, they will only receive it as a text. Twitter is happy to let these users fall to the wayside, why open the app at all? In the meantime, Snapchat/Facebook/Instagram and others will continue to build up real time news stories INSIDE their apps. Alternatives to what twitter does will grow everyday. Almost every other week Snapchat launches small tweaks to it's app, Twitter hasn't had any major product innovations at all. Twitter might also have to start worrying about a drop in the value of its network, as more people leave the service for other competitors, the less valuable it becomes for those left to have a twitter account. This is because people will find less of their social network, whether friends or professional, using the app, thus Twitter loses more of it's drive for users to continue using the app. This can snowball rather quickly, especially if users have alternatives and are flooding to another service (such as Snapchat or Instagram). For anyone who downplays the significance of this, think back to how quickly Blackberry fell from grace. At the end of the day, excluding these pretend SMS users, Twitter had no user growth. No one is joining the service anymore, because, why should they? 

More Executives Leaving
Not to mention, two executives are leaving the company, continuing the fast swinging door that has become the norm at Twitter. The head of GROWTH at Twitter announced he will be moving on to better things at YouTube (owned by Google). Additionally, a product director is also be jumping ship, heading over to Dropbox. Twitter has yet to find steady leadership, a troubling note. Looking around at other success stories, there is almost always a strong leader with a clear vision of the company. Tesla and Elon Musk, Apple and Steve Jobs, Microsoft and Bill Gates, Virgin and Richard Branson, Facebook and Mark Zuckerberg, . These names become synonymous with the company, Twitter lacks this vision and leadership, another troubling sign.