Twitter’s Probably Screwed

When Twitter IPO’d in 2013, the general feeling was elation. It had incredible product-market fit, the growth story was compelling, and it was set to be the hot new thing. The next Facebook, maybe. If you were a banker selling the stock, your pitch probably sounded something like the following:

“An ad-supported content platform is the single greatest business model ever invented! There is strong incentive alignment between the service you deliver to consumers and the service you deliver to your paying customers (advertisers). You want consumers to scroll and scroll and scroll, interacting with content, indicating interests, and just spending as much time on the site as possible. This interaction feedback loop results in a content canon, firing memes that keep people clicking. Simultaneously, advertisers love it because all those clicks help make the ads really effective. Twitter is where this is going to happen.”

That is a compelling pitch! There is nothing retailers want more than a service that tricks their customers’ stupid monkey brains into buying whatever an ad slaps in front of their faces. Unfortunately, this growth story turned out to be completely false. 

It would not be an exaggeration to say that Twitter has blown it. Its stock is down ~21% from its IPO price 8 years ago. Their overall growth is abysmal in comparison to Facebook. They have less than 5% market share in digital advertising and are an afterthought for marketing teams. In 2017 they had negative user growth! While things have picked up recently with the service adding 25M monetizable daily active users last year, it has fallen far short of its potential. My favorite description of the business comes from Mark Zuckerberg, who said, “they drove a clown car that fell into a gold mine.”

However, over the last year, it feels like Twitter has finally woken up. There are dozens of new product initiatives, a fresh strategy, a new CEO, and a 2023 revenue target of $7.5B and 315M monetizable daily active users. These goals are challenging and demand perfect execution from the team. The company has a renewed focus on creator monetization tools and improving their direct response ad business. There is actually some optimism among the investor base that maybe, just maybe, this time will be different. Maybe Twitter will finally be able to turn its soft, social power into hard dollars and cents.

I am not convinced. 

Today, we will be explaining how the digital ad market works, where Twitter fits on that landscape, and why its likelihood of building a high-growth advertising business is small. 

Click, Click, Buy