A smartphone is held as a laptop screen shows the Twitter Inc. logo in this arranged photograph taken in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Twitter Earnings: Shut Out of the Advertising Big Leagues

(Bloomberg Gadfly) -- I could show you a lot of troubling financials to illustrate how Twitter Inc. is stuck. Or I could boil it down to a sentence: Twitter is not Facebook or Google. And that's why Twitter can feel more than ever like a vital digital hangout, but Twitter as a business is in worse shape than ever. 

Twitter in the third quarter continued its pattern of luring more people to drop by, and the company says those using Twitter are more likely to show up regularly. That helped encourage stock jockeys to send Twitter shares soaring in early trading Thursday, even as a company error cast doubts on the reliability of its reported user metrics.

So more people seem to be warming to Twitter. That's good. But it's irrelevant if advertisers don't show up, and they are not. Twitter's revenue from advertising declined 4 percent in the third quarter from a year earlier, excluding sales of a business the company is winding down. It's true the revenue declines are improving, but it's hard to congratulate technology companies for shrinking a little less. 

Twitter Earnings: Shut Out of the Advertising Big Leagues

Advertisers could come back to Twitter. The company seems to be doing many of the right things to improve its appeal for advertisers. But I'm not sure they will in big enough numbers to support Twitter's former size. That doesn't mean Twitter can't be a viable, healthy business. But it's hard to imagine Twitter can ever join the internet big leagues.

Things have changed from a few years ago when Twitter seemed full of promise. The harsh reality now is that the business of selling online advertisements is a winner-take-all market, and the winners are Google parent company Alphabet Inc. and Facebook Inc. Those two companies are expected to grab two-thirds of all U.S. revenue from selling ads online or on mobile devices, according to research firm eMarketer. 

Twitter Earnings: Shut Out of the Advertising Big Leagues

Advertisers need to focus on reaching a lot of people, or preferably a lot of exactly the right kinds of people, to pay attention to and buy their products and services. TV, billboards and radio have proved to be good at attracting attention. So have Facebook and Google. Nearly everyone else is an afterthought. As Barry Diller, the executive who runs internet business such as Angie's List and College Humor,said recently: "If you’re going to build a business based upon advertising ... I would say go home."

This could change. Facebook was once a puny thing, too. Snapchat, Twitter or Amazon could exploit their strengths as advertising mediums. (It's worth noting that eMarketer expects Amazon.com Inc., an online shopping company, to generate more U.S. advertising revenue this year than Twitter, which generates nearly of all of its sales from advertising.)

Even if Twitter never joins the top tier of advertising companies, it could still be a great company. Twitter has been slashing and burning its staff and underperforming businesses to shrink expenses. As Twitter becomes leaner, it's more likely it can support itself on a few billion dollars in annual advertising sales.

The company even said it might turn a profit in the fourth quarter under generally accepted accounting principles. I know that doesn't sound like much for most public companies, but Twitter has not performed the daring feat of profit as a public company.

Shooting for a profitable, viable, not-Titanic company isn't the moonshot ambition that gets Twitter CEO Jack Dorsey invited to Silicon Valley galas. But lower expectations are what keep Twitter healthy. 

Gadfly parent company Bloomberg L.P. is developing a global breaking news network for the Twitter service.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

  1. Twitter said on Thursday that it incorrectly reported the number of its monthly users for nearly three years. That is the metric most closely watched by investors, and Twitter misstated it every quarter. It also said there's no way to give accurate revised figures before the fourth quarter of To say the least, this mistake damages Twitter's credibility. How do we know that Twitter is reporting other figures including growth in daily users a figure it declines to detail correctly? 

To contact the author of this story: Shira Ovide in New York at sovide@bloomberg.net.

©2017 Bloomberg L.P.