Twitter sees 12% ad revenue spike, sales and marketing expenses also increase

Twitter posted a 12% increase in advertising revenue to US$885 million during the fourth quarter of its 2019 financial year (Q4 2019). International ad revenue grew 3% to US$375 million, reflecting overall steady growth in brand offset by Mobile Application Promotion (MAP) product headwinds and previously discussed issues in personalisation and data settings.

In APAC, MAP revenue dipped more than 25% in Q4 2019 while brand revenue continued to grow. Twitter CFO Ned Segal said during the recent earnings call that this gives a sense that advertiser sentiment in terms of wanting to work with Twitter to launch new products and services, and to connect with what is happening remains strong. Nonetheless, he said that there is still work to be done on the revenue product end to better help advertisers outside of the US.

When it comes to sales channel, Twitter said large to mid-tier customers continue to represent a sizable majority of its advertising revenue. Its self-serve channel, while considerably smaller, continues to grow. Meanwhile by product, video ad formats continued to perform well, primarily driven by strength in video website card and in-stream video ads.

Overall, Twitter posted a 11% increase in revenue of US$1.01 billion in Q4 2019. Total international revenue was US$416 million, an increase of 3%. Japan, Twitter's second largest market, grew 1%, contributing US$139 million in the quarter.

With the 2020 Tokyo Olympics scheduled for the second half of this year, Segal said Twitter already has put in place a plan to improve content experience on its platform.

These include having near real-time highlights of important events, allowing users to vote on the content they want to see on Twitter, and partnering with NBC to push exclusive content from the Games.

"Ultimately, we'll share the revenue, the ad dollars with our content partners around these highlights all around the world. So we've learned a lot from the past about how to improve the conversation, how to improve the content and how to deliver better for advertisers, and you'll see a lot of that show up in the Olympics," he added.

In addition to the revenue growth, total costs and expenses also jumped 22% to US$854 million, reflecting planned headcount growth and other investments. Sales and marketing expenses grew 14% to US$24 million, mainly due to higher personnel-related costs and allocated facilities and supporting overhead expenses, partially offset by a reduction in marketing expenses.

Cost of revenue increased by 17% to US$314 million, mainly driven by higher revenue share expenses associated with increased video content and infrastructure-related expenses. Meanwhile, R&D expenses grew 40% to US$198 million, primarily due to higher personnel-related costs as it continues to focus its investments on engineering, product and design.

Jump in ad metrics and monetisable daily active usage

Twitter also saw total ad engagements increase by 29%, primarily due to increased impressions driven by audience growth and improved clickthrough rates (CTR). CTRs increased year-on-year across the majority of ad types due to ongoing improvements in ad relevance. Meanwhile, cost per engagement (CPE) dipped 13%, reflecting a continued mix shift to video ad formats which have lower CPEs and like-for-like price decreases across most ad formats. Twitter explained that CPE is an output of its ads auction process, and will vary from one period to another based on geographic performance, auction dynamics, the strength of demand for various ad formats, and campaign objectives.

The company's average monetisable daily active usage (mDAU) grew by 21% to 152 million, mainly driven by product improvements including increased relevance in the Twitter timeline and notifications. The average international mDAU was 121 million, compared to 99 million in the same period of the previous year and compared to 115 million in the previous quarter. Meanwhile, the average US mDAU was 31 million, compared to 27 million in the same period of the previous year and compared to 30 million in the previous quarter.

Outlook for 2020

Twitter is focused on four objectives in 2020 - increasing development velocity and trust; increasing healthy public conversation; increasing revenue durability; and enabling anyone, anywhere to work at Twitter.

Revenue for Q1 2020 is expected to be between US$825 million and US$885 million, while operating income is predicted to be between US$0 million and US$30 million. Twitter also expects headcount to grow by 20% or more this year, especially in engineering, product, design and research. It also expects total costs and expenses to increase by about 20%. Meanwhile, its investments in 2020 will also include building out a new data centre to add capacity to support audience and revenue growth.