Twitter (TWTR) wants to significantly drive engagement and revenue over the next two years – how will it do that?

Twitter Inc. (NYSE: TWTR) is a force to be reckoned with. After benefiting from high engagement levels in 2020 amid the COVID-19 pandemic, the microblogging site kicked off 2021 with a bang by banning the former US president Donald Trump from its platform. There were many discussions about how this would impact the company but Twitter has held its ground.

Twitter ended FY2020 on a strong note with a 7% growth in total revenues and a 27% increase in mDAU compared to FY2019. At its investor event on Thursday, Twitter shared its main targets for the near-term and outlined its strategies to achieve them.

Key goals

Twitter outlined three key goals that it plans to achieve by the end of 2023. The first one is to double its development velocity by the end of 2023, which will double the number of features per employee that directly drive either mDAU or revenue.

The second is to achieve at least 315 million in mDAU for the fourth quarter of 2023. For this, Twitter has to yield continued compounding growth at about 20% per year from the base of 152 million mDAU reported in the fourth quarter of 2019. Thirdly, Twitter plans to more than double its total annual revenue to over $7.5 billion in 2023.

Higher engagement

At the end of FY2020, Twitter had 192 million in mDAU. The company sees over 2 million people log on to its site every day who are either new to the service or who have not logged in for 30 days or more. Twitter is seeing growth in its user base every year and a large part of that growth is the result of changes that the company is bringing in its features.

One of the factors that is core to driving engagement on the platform is healthy conversation. People do not want to spend time in an environment filled with hate and harassment and Twitter has been stepping up its efforts to reduce toxic content on its site. This has an effect on its advertising revenue as well because brands do not want their ads to show up near hateful or inappropriate content.

Twitter has also expanded its policies and added new features to tackle toxic content and misinformation on its platform. For example, the Conversational Controls feature, which allows users to decide who can reply to their tweets, has helped reduce abusive replies by 85%.

Another step towards driving engagement is helping people find topics of interest. The company has added features such as Lists and Topics which are helping drive engagement. Twitter believes Topics will be a substantial driver of mDAU growth going forward.

Revenue growth

Twitter is looking to more than double its revenue growth over the next three years and to achieve this, the company will work on increasing its share of the global ad market. At the end of 2020, the global ad market stood at $490 billion. Digital advertising comprises roughly half of this, which would be $280 billion.

Within the digital advertising market, brand and direct response, excluding search, represented around $150 billion of opportunity in 2020. At present, Twitter owns less than 3% of this $150 billion market opportunity.

Twitter generated $3.2 billion in advertising revenue during 2020. Around 85% of this comes from brand advertising while 15% comes from performance or direct response advertising. The company is working on increasing its ad market share by bringing its performance products to parity with other offerings in the market. By doing so, it believes it can increase its mix from 85/15 to 50/50 over time. Twitter is also working on monetization opportunities beyond advertising.

Twitter expects digital advertising to grow significantly in 2021. The company is investing heavily to drive advertising and engagement on its platform and these efforts are expected to help drive revenue growth in the coming years.

Shares of Twitter have gained 43% since the beginning of the year and 134% over the past 12 months.

Click here to read the full transcript of Twitter’s Q4 2020 earnings conference call