Twitter Business Model: How the Firm Makes Money

UTC by Adedamola Bada · 8 min read
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Twitter Business Model: How the Firm Makes Money

Read this guide to learn more about the way Twitter business is done – check key sources of revenue, fresh financial data, and the company’s recent developments.

Twitter, Inc. (NYSE: TWTR) is an American based social media platform & blogging site where users send, receive, and upload messages based on current trends. These messages are usually known as ”tweets” and only users who create accounts on the online platform can be actively involved by sending tweets, liking, reading, and retweeting them; while others are only allowed to read them. Registered Twitter users access the social media platform via the online web pages, the mobile application software on iOS and Android devices as well as making use of Short Message Service (SMS).

Twitter business was created in 2006 by Jack Dorsey, who serves as the Chief executive Officer, along with Evan Williams and Biz Stone. Twitter, Inc. headquarters is situated in California and has more than 25 branches in several locations around the globe. While messages at first could not exceed 140 characters, it was later increased in November 2017 to 280 characters to provide services to non-Asian languages.

Twitter Inc. have in recent times, had massive progress and global recognition since its start-up; the social media networking platform has gone on to garner over 300 million users per month, having almost 150 million people making use of the platform daily. As of 2012, Twitter recorded a mean day search and inquiries by people of over 1.5 billion. A year later, it was categorized with the more frequented platforms and is famously addressed as ‘’the SMS of the Internet”. Twitter Inc. subscribers rapidly grew to about 321 million people by 2018.

Twitter’s Performance for 2015-2019

Between 2015 and 2017, Twitter business recorded an average negative net income of about 362 million dollars despite earning revenue of over 2 billion dollars in each of the years. However, Twitter recorded its first positive net income of approximately 1,206 billion dollars in over ten years.

In the financial year of 2017, Twitter recorded losses in the region of US$108 million and yearly earnings of approximately $2.443 billion which is a reduction of 3.9% from the previous financial year cycle. Twitter Inc. traded its shares at $17 per share and the value of its outstanding shares was valued over US$25.6 billion as of October 2018. As Twitter revenue increased annually, their total assets increased from about US$6, 442 billion in 2015 to about 10 billion dollars in 2019.

In October 2017, Twitter Inc. banned popular media channels RT and Sputnik from placing adverts on their websites due to investigations by US national intelligence report that both RT & Sputnik had played a role in Russia’s interference in the United States presidential election held in 2016.

The Russian foreign ministry Director of Information, Maria Zarkharova claimed the ban by America was a violation of the freedom of speech act. By late 2019, Twitter Inc. officially stopped the publishing of political ads on the platform, an action that was ensued for various unfounded claims made by the political ads. Twitter Inc. CEO Dorsey proclaimed that internet advertisement was a powerful tool and was very efficient for advertisement, thus; notable risks are brought about, risks that affect billions of people.

Twitter, Inc has continuously made notable improvements to their social media presence. Said improvements mainly centered on the protection of the privacy of its users. In 2016, Twitter Inc. launched the Trust& Safety Council to allow people to feel safe while engaging themselves on twitter. In that same year, the firm identified and nullified a threat by hackers on users with Android devices that allowed hackers to access and control the user’s online presence.

Twitter Business Financials in 2020

By the end of the first quarter, Twitter’s business revenue was less than expected, making them declare falsified earnings. This action left investors complacent since the firm experienced a reduction of about 8% in stock prices by the end of April. The poor results were announced in the early hours of the new month, and the fact that twitter Inc. did not release second-quarter guidance was unusually troubling.

Over the last couple of quarters, the firm has unfortunately recorded a reduction in net profits, ensuring net negative annual revenue. With the coronavirus pandemic affecting world businesses, Twitter Inc. has not been spared. Although the online presence has experienced a massive increase in traffic, due to the quarantine of millions of people in their homes, and most having to resort to social media to keep them occupied.

Regardless of the increased traffic, advertisement, which provides a key part of the establishment’s major revenue, has been severely affected with many businesses having to shut down temporarily, therefore having no need to place ads on Twitter.

The daily active users of Twitter are a monetizable and key metric which investors tend to place their attention on as this metric takes the census of all users making use of the online presence that shows ads. While most experts have predicted an uprise in the metric, the management has declared uncertainty in the firm’s overall finances.

Although the earlier issued guidance for the first quarter has been withdrawn and the establishment expects a GAAO operating loss and decline in income. Also, the firm indicated that it is impossible to predict the financial lost impact due to the form and unpredictability of the pandemic.

Twitter business accrued earnings in the region of $780 million in the first quarter of 2020 with a monetizable Daily Active Users (mDAU) of about $160 million which is a lesser earning than the first quarter of 2019 and a decrease in the adjustable revenue per share from 0.37 in Q1 of 2019 to 0.01 in Q1 of 2020.

The “ray of hope in the darkness” is that experts have predicted an increase in mDAUs; the metric logs the census of users that makes use of the firm’s main website or app that showcases ads. The mean of this mDAU is taken by summing the mDAUs for each day and dividing the added total by the days considered in that period. This metric enables potential marketers to ascertain their target audience.

However, the final quarter of 2019 experienced a reduction in the net revenue in comparison to the final quarter of the previous fiscal cycle as the organization announced a US$0.1 billion compared to US$ 0.3 billion the year before.

Twitter Business Segments

Twitter is known for its sole operating section as well as a publicizing system. However, the company separates its financial revenue report in two sections; Data Licensing and the Advertisement services it offers.

Advertisement Services

Twitter business generates around US$3.0 billion in advertising which is about 86.5% in yearly revenue. This sections’ income increased annually by 14%. Twitter mostly generates income from displaying promoted products and services, including paid and advertised accounts, sponsored trends, and active tweets to active users on the platform.

The company’s algorithm is fashioned to display paid advertisements to users who search for related keywords; also, “lists of popular celebrities and currently discussed topics’’ are provided to users based on trending activities for a country. Advertisers can also pay for the products to be promoted on the platform as this is a good strategy for business promotion.

Although Twitter earns a large portion of its revenue from daily usage of its web and mobile platform, the company also outsources paid advertisements to other websites. In the first quarter of 2019, the annual earnings increased to US$1.0 billion from US$0.9 billion in the fourth quarter of 2018.

Data Licensing and Other

Data licensing, commands a generated income of about US$0.5 billion for Twitter which is approximately 13.5% in yearly earnings. Twitter generates millions of dollars annually in revenue with 2010 recording the lowest return of US$20.96 million. As of last year, Twitter business made over US$465 million in data licensing fees.

Twitter, also sells calculated metrics and information in the form of subscriptions to organizations and software developers seeking to evaluate and optimize user’s metrics on the social networking site. This information is categorized and sold in two levels of accessibility- enterprise and premium. Twitter also charges some other commissions which may include administrative fees which it obtains from its MoPub and mobile ad exchange.

Twitter’s Recent Developments

In the fourth quarter of 2019, Twitter claimed that its innovative monetizable Daily Active Usage (mDAU), which provides metrics for the company’s earnings, increased 21% yearly. The incurred cost of operation for that period was around US$153 million.

These numbers are essential and vital for the company in this era when there is a dire need to manage the health of the messaging taking place on its platform is immense. Twitter Inc introduced author-moderated replies in the US and other geopolitical regions around the world to spot and effectively delete tweets that are not in an alliance with its rules and policies.

Twitter, whose origins are affiliated with brainstorming sessions from current founders, have gone on to become a widely sought-after social media platform, owing to its flexibility and daily engaging trends. The capacity to view pictures, like and comment makes the online media presence very exciting. The establishment is currently worth about US$10.16 billion with over 4600 employees.

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