About 60 million Twitter (TWTR +0.00%) users abandon the platform every month.
Speaking at an investors conference in mid-November, CFO Ned Segal noted 2 million users either reactivate inactive accounts (more than 30 days since their last activity) or create a new account every day.
Segal noted that one-third of the 2 million accounts are completely new users. That adds up to about 243 million completely new users over the course of the year. Last year, former CFO and current COO Anthony Noto said Twitter has 700 million active users on an annual basis. So, about 35% of those users are completely new to Twitter. With just modest user growth over the past year, the company only retains about two-thirds of its users in a given year.
That data point was a missing piece from last year's comments from Noto, and it shines a light on just how bad Twitter's user retention problem is.
Image source: Twitter, Copyright Aaron Durand (@everydaydude) for Twitter, Inc.
This isn't about user growth
Poor user retention is undoubtedly a big reason for Twitter's lagging user growth. Over the last year, the platform has increased monthly active users 4%. By comparison, Facebook (FB +0.23%) has grown users 16%, and Instagram's user count is up more than 33%.
But more important than user growth is Twitter's ability to monetize its users. Poor user retention makes the task much more challenging.
Twitter has two primary revenue sources: advertising and data licensing. Both businesses require deep databases to maximize revenue. More user data improves ad targeting and it allows data licensors to get more value out of Twitter's data sets.
But with 60 million of Twitter's monthly users providing little to no user data, those users present limited value compared to Twitter's core user base. The impact is seen in advertisers' biggest complaint about Twitter: The return on investment doesn't measure up to that of competitors like Facebook.
Twitter's ad revenue has fallen for four straight quarters following its decision to de-emphasize some ad products at the beginning of the year. It was already exhibiting signs of trouble before that decision, and it's not clear when Twitter will start to turn around.
What's Twitter doing to fix its problem?
Twitter is doing a couple things to fix the problem from both ends.
First, Twitter is investing in improving its product for users. Segal points out that it has improved the logged-out experience, made the onboarding process simpler, sorted the timeline algorithmically instead of chronologically, added a new "explore" tab to discover new content, and doubled the character count restriction for tweets. But most of those changes happened over a year ago, and Twitter is still facing the same retention problem it did last year.
Twitter's efforts on video might help attract more users to the platform. The company is investing a lot in new video, and Noto says his goal is to offer live video streaming 24/7 for users. But while video -- especially of high-profile events -- can attract users to the platform, it won't necessarily entice them to stick around.
Second, Twitter is working to improve ad products. It recently introduced a subscription service for small advertisers, where Twitter will run and optimize ad campaigns for them. The goal is to show improved ROI for advertisers, one of the biggest challenges for for marketers on the platform. In the same vein, Twitter is expanding its data licensing products to target small businesses.
These investments cost money, though. Twitter has run out of room to cut costs. If Twitter's new products fail to improve user retention or return on investment for advertisers, it won't be a profitable company for very long. Management expects to turn a profit in the fourth quarter, but revenue is seasonally strong that quarter. It could easily return to the red again in 2018.
