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Does Twitter Have a User Growth Problem?

Twitter (NYSE: TWTR) is a powerhouse in social media -- a place where world leaders, celebrities, and everyday people can join together and express themselves in real time. But while the platform has become a staple of modern life, investors have been disappointed by the business, which has had trouble delivering revenue and user growth.

Will Twitter be able to turn things around?

Growth in monetizable users

The best metric for gauging Twitter's progress toward growing its revenue and user base is its number of monetizable daily active users (mDAU). That figure measures all the accounts that are considered to be authentic and have accessed Twitter on any day, either via the web or its mobile app.

Image Source: Twitter Financial Reports.

Over the last few years, Twitter has made a ton of progress -- growing mDAUs from 126 million in December 2018 to 186 million in June 2020 -- an increase of 47%.

Management attributes a large share of those gains to the increasingly intense global conversations around such themes as the 2020 election, Black Lives Matter and other civil rights movements, the COVID-19 pandemic, and sports. It has gained daily users both in the United States and abroad.

However, the growth in mDAUs flattened out in the last two quarters. Perhaps Twitter has reached peak adoption. With the 2020 elections over and the pandemic looking likely to fade into the background at some point next year, could Twitter see its audience decline?

The comeback of live entertainment

Of course, Twitter isn't just a place to complain about politics or the COVID-19 pandemic. Much of the conversation on the platform has always related to things like sports, movies, and television series. The first half of 2020 saw a sharp decline in the type of real-world events that drive much of that conversation.

Sports and live entertainment started to come back in the third quarter as organizations such as the NBA figured out how to conduct games relatively safely. That helped Twitter deliver a 13.6% year-over-year increase in revenue in Q3. Building on this momentum, the company has established partnerships with the 2021 and 2022 Olympics, the NBA, WNBA, and NFL that will provide users with live, on-demand video and highlighted content.

When the NBA returned within its Orlando-based bubble, Twitter sought to bridge the gap between players and fans with the hashtag #NBATwitter. The company later surveyed fans to see what they thought about the content that resulted, and found that 86% of NBA fans on Twitter viewed the social media platform as providing a substitute for some of what they missed from being unable to attend the games in person or watch them with friends.

The NFL also returned to action during the third quarter, and partnered with Twitter. They jointly created a real-time screen called the "Showtime Cam" which allows players to see what fans are tweeting, and after big plays, players can pose for the cam as well.

The 2020 U.S. presidential election was one of the most anticipated events of the year. Twitter capitalized on it by creating features that provided users with the latest news from various outlets, live-streaming events such as debates, and debuting a tool that showed each candidate's status by state. Twitter also made efforts to reduce the spread and impact of false and misleading information, expanded its integrity policy, and encouraged more consolidation of tweets that were "liked" or retweeted. Management believes these improvements created a better overall experience for its users.

Image Source: Getty Images.

Will people take a break from Twitter?

Despite the election being over and a number of major live events coming to an end, people will still continue to see value in Twitter. The company's improvements to its user interface and platform have allowed it to hold onto its favored status. Investors can anticipate that its new features will help the platform retain and grow its active users.

However, in the short term, it could be in for a few quarters of flat to declining user metrics. Long-term investors will need to look beyond those, and focus on the question of whether or not Twitter will continue to be a staple for commentary on pop culture, politics, and news. If the answer is yes, then the company will have a bright future.

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Luis Sanchez CFA owns shares of Twitter. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.


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