Twitter (TWTR +0.00%) shares were slammed when the company reported its quarterly results late last month. Some glitches in the company's ad products weighed on revenue growth. The social network's revenue increased by 9% year over year to $824 million, missing analysts' average forecast for the metric. But revenue would have increased by 12% if it weren't its ad product glitches.
A look beyond this revenue miss, however, shows reasons for optimism: New users are onboarding easier, opportunity lies ahead in video ads, and sentiment from marketers for Twitter's ads is upbeat. Here's a look at management's discussion of these important narratives during the company's third-quarter earnings call.
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Demand from advertisers is strong
While the negative impact from glitches in Twitter's advertising products on the company's top line were disappointing, investors should note that underlying demand for the company's ad inventory is robust.
"We were pleased ad revenue growth rebounded to double digits globally in September with the most pronounced recovery in the United States," said Twitter CFO Ned Segal. "Advertiser sentiment remains strong."
But Segal did note that even though Twitter is taking action to address revenue product issues, he expects them to still weigh on the tech company's ad business "in the near term."
Twitter is doing a better job onboarding new users
Perhaps the most impressive metric from Twitter's third quarter was a significant acceleration in the social network's year-over-year growth rate in monetizable daily active users (mDAU). Twitter's mDAU jumped 17% year over year -- up from 14% growth in Q2, 11% growth in Q1 and 9% growth in the fourth quarter if 2018.
Partly fueling this growth was the social network's improved ability in onboarding new users. Product improvements over the years and efforts to make the home timeline better have compounded and are making the service more attractive to new users.
Segal explained:
The people who are new to Twitter this quarter benefited from all the product work that we've done over the last many years and watching that compound, watching the pace of our innovation improve and watching how we continue to drive better relevance, whether it's around notifications or the home timeline or onboarding, it's great to see the real impact that that's having.
Room for improvement in video ads
Video ads were a key driver for Twitter's advertising revenue growth in Q3. Yet there's still room for improved engagement in the company's video ad product without boosting the number of video ads in a user's timeline.
Twitter can do this by displaying shorter video ads, Segal said. Currently, over half of Twitter's video ads are longer than 15 seconds. But six-second ads are proving to have much higher completion rates, better engagement, and overall better performance for the advertiser. This ad length is also more pleasing to the user, of course.
"That's a great example of something we can do that doesn't require selling one more ad but can help everybody and certainly would improve ad engagements and all the associated metrics," explained Segal.
