3 Reasons Twitter Won't Double Its Annual Revenue by 2023

Twitter's (TWTR) stock recently hit an all-time high after the social media company set bold three-year growth targets on its analyst day. It now aims to grow its mDAUs (monetizable daily active users) from 192 million at the end of 2020 to "at least" 315 million by the end of 2023.

It plans to double its number of features per employee that "directly drive" its mDAU or revenue growth, and believes those efforts will more than double its annual revenue from $3.7 billion in 2020 to "over $7.5 billion in 2023." That optimism clearly dazzled the bulls, but I'm not convinced Twitter can hit those lofty targets, for three simple reasons.

Image source: Getty Images.

1. Twitter has a history of moving the goalposts

About a decade ago, Twitter set a goal of reaching 400 million monthly active users (MAUs) by 2013. But it ended 2013 with just 241 million MAUs, and only grew to 330 million MAUs by the first quarter of 2019.

Twitter subsequently stopped reporting its MAUs and replaced the industry-standard metric with "mDAUs," which supposedly excluded spam, bot, and inactive accounts. We shouldn't judge Twitter solely based on its past choices, but its history of moving the goalposts causes me to take its new forecasts with a grain of salt.

2. Twitter's mDAU growth target is too aggressive

Twitter's mDAUs rose 21% to 152 million in 2019, then grew another 27% to 192 million in 2020. To hit 315 million mDAUs by 2023, its mDAUs must grow at an average annual rate of 18.5% over the next three years.

Data source: Twitter and author's own calculations.

I believe that target is too high, for three reasons. First, Twitter attributed its accelerating mDAU growth last year to the "global conversation around current events," including the U.S. elections, civil unrest, and the pandemic. But with the elections over and the pandemic likely to end later this year, people could spend a lot less time on Twitter.

Second, Twitter has been aggressively banning controversial users, including the former president, from its platform for spreading misinformation or inciting violence. Those bans could push some of Twitter's users to rival platforms, including the freewheeling app Parler, and throttle its mDAU growth.

Lastly, Twitter faces intense competition from faster-growing social platforms like Snap's (SNAP 27.63%) Snapchat, Pinterest (PINS 4.04%), and ByteDance's TikTok. All these platforms could cause people to spend less time on Twitter over the next three years.

3. Twitter's revenue growth plans are uninspiring

Even if Twitter hits 315 million mDAUs by the end of 2023, that would only represent 64% growth from 2020 -- so it would need to significantly boost its average revenue per user to double its annual revenue.

Twitter believes it can accomplish that by selling more ads to small-to-medium-sized businesses (SMBs), launching carousel ads and other ad features, and testing out subscription models for popular accounts.

Image source: Twitter.

Twitter says brand campaigns from large companies currently account for about 85% of its ad revenue. The remaining 15% comes from "performance" ads, which are mainly used by SMBs to funnel clicks toward site visits or app installations.

Twitter's revenue product lead Bruce Falck claims it can shift that mix to 50/50, "simply by bringing our existing performance products to parity with other dealer offerings in the market."

In other words, it plans to launch new ad products for smaller businesses to boost its ad revenue per user. But it could still struggle to catch up to Facebook (META 0.43%), its subsidiary Instagram, and Pinterest, all of which seem better equipped to handle performance, carousel, or e-commerce ads than Twitter's chaotic news feed.

Twitter believes it can monetize certain accounts by getting the followers of those accounts to pay subscription fees for exclusive tweets, videos, and other content. That might be an appealing idea for some independent content creators, but they could also simply post links back to Patreon or other platforms instead of accepting direct payments on Twitter.

Twitter also plans to expand its mobile advertising network, MoPub, to grow its revenue. However, MoPub faces fierce competition from similar platforms like Facebook's Audience Network and Snap's Audience Network, and Apple's upcoming iOS 14 update -- which will let users opt-out of data-tracking ads -- could hurt all these companies.

The bottom line

When Snap recently claimed its annual revenue would rise by over 50% for "multiple years" I believed it because the company had clearly demonstrated how it could squeeze out more revenue from its users with its expanding ecosystem of AR lenses, short videos, and in-app games.

I'm skeptical of Twitter's lofty goals because the company seems to be glossing over some serious weaknesses. I won't believe it's on the right track until it can consistently grow its mDAUs at an average rate of about 20% over the next few quarters while growing its average revenue per user.