Twitter (TWTR) might have to set a few things right before asking customers to pay

Twitter Inc. (NYSE: TWTR) delivered a 19% drop in revenues and an adjusted loss of $0.16 per share for the second quarter of 2020. The company’s major source of income, advertising revenues, fell 23% year-over-year due to lower advertising spend and economic slowdowns caused by the pandemic.

On its earnings conference call, Twitter disclosed its plans to look for alternative sources of revenue, which could include subscriptions or direct response advertising. The very mention of subscriptions, however, has sparked a debate on the probability of people paying to use Twitter.

Let’s take a look at some of the main highlights from the announcement as well as a few areas Twitter might have to work on before rolling out any subscription plans.

Advertising revenues

Twitter saw a 27% decline in ad revenues in the last three weeks of March. Although there was a slight pickup in the second quarter from the March levels, many brands slowed or halted their spend during late May to mid-June in the wake of the protests that broke out across the US. Ad revenues decreased 15% in the last three weeks of June. Demand showed recovery once the protests subsided.

On the bright side, certain markets in Asia saw an increase in advertising during the second quarter and the company believes it is well positioned to see an improvement in advertising when product launches and live events return to Twitter.

Usage

In general, the COVID-19 pandemic led to higher usage of social media platforms as people largely stayed at home. Twitter too benefited from this trend as its average monetizable daily active users (mDAU) grew 34% year-over-year to 186 million, driven by the lockdown and increased conversation about the pandemic and other current events.   

Twitter has also been working on improving its features particularly in terms of notifications, Search and Explore. The company believes these improvements would have helped mDAU growth even in the absence of the aforementioned external factors.

Subscription

Twitter said it was in the early stages of exploring additional revenue opportunities to complement its advertising business which could include subscriptions. The company does not expect any revenues attributable to these opportunities in 2020 as it is very early and it is still evaluating its options.

“We have a really high bar for when we would ask consumers to pay for aspects of Twitter. And this is a start, and we’re in the very, very early phases of exploring.” – Jack Dorsey, CEO, Twitter.

Twitter has had several ideas over the years and the company has focused most of its attention on increasing revenue durability, i.e. having multiple lines of revenue to pull from. The company wants to make sure any new line of revenue is complementary to its ad business.

Hiccups

On the topic of Twitter’s subscription plans, there are a few things the microblogging platform needs to work on before proposing a paid service to its users. The first on this list is none other than hate speech and misinformation.

Twitter has long been censured for its inability to control the toxic and malicious content on its platform. Like its peers, it has also faced criticism over false information and the censorship of conservative views.

Twitter said it is refining its prediction models and rolling out additional detection and remediation tools to tackle hate speech on its platform. The company has also been targeting misinformation related to the coronavirus pandemic online and as part of these efforts, it has removed 15,000 tweets and challenged 4.5 million accounts.

Another cause of concern is security breaches. Twitter was left red-faced once again after suffering a massive breach recently in which hackers accessed direct messages of victims in an apparent bitcoin scam. The company said it has improved its security measures and is cooperating with law enforcement on the issue but the incident appears to have disappointed users, who are already skeptic on data privacy, yet again.

Unless Twitter works on ironing out these wrinkles effectively and gaining the trust of its users well enough, it might be difficult to bring out the idea of a subscription service especially for something like social media.

Click here to read the full transcript of Twitter Q2 2020 earnings conference call