Twitter’s stock fell like a lead balloon Thursday morning – down as much as 20% in pre-market trading – after reporting an anemic third quarter.
According to Twitter, revenue took a hit in Q3 thanks to a bit of seasonality in July and August and a few ad product-related “bugs” that it’s working to fix.
But read between the lines and here’s what happened: Cutting back on unauthorized data use and sharing negatively impacted Twitter’s business.
Twitter missed expectations for the quarter, despite increasing ad revenue 8% year over year to $702 million and boosting overall revenue 9% YoY to $824 million. Average monetizable daily active users clocked in at 145 million, up from 124 million this time last year and 139 million last quarter.
So, what the heck happened?
A bunch of things, actually. Ad tech glitches cropped up throughout the quarter, Twitter CFO Ned Segal told investors.
First, Twitter discovered that it was using device settings to personalize ad targeting regardless of whether someone had opted out. When new users sign up for Twitter, they’re asked a series of questions, including whether Twitter can use their device settings to figure out what ads to show them.
“Turns out that the setting wasn’t working as expected and was using device settings even if people asked us not to do so,” Segal said.
Twitter stopped using that data for targeting opted-out users in August, and revenue took a hit, “because it’s one less input you have when deciding what ads to show to people,” Segal said.
Twitter claims that the type of device-setting data it was using without permission was relatively benign, like whether someone is an iPhone or Android user or collecting IP addresses and time stamps to infer that certain browsers or devices are associated with each other or with a specific account.
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But device attributes can also be used to create identifiers for audience matching, to improve match rates and do attribution – aka, fingerprinting, a workaround for tracking users when cookies or other device IDs aren’t available, and a practice that all the primary browsers – Safari, Firefox and Chrome – are cracking down on in the name of privacy.
But that wasn’t the only ad product bug crawling around Twitter’s ad stack in Q3.
Twitter’s mobile application promotion (MAP) product shared measurement data with partners even though it was unauthorized to do so. Twitter fixed that problem in August.
MAP is a linchpin of Twitter’s ongoing strategy to attract more direct response advertisers to its platform, and it’s been investing a lot of time and money to update the offering.
Last up, although Twitter management didn’t mention this incident on the call, it had disclosed another data misuse in early October, acknowledging it had misapplied two-factor authentication (2FA) to serve targeted ads through its Tailored Audiences tool. When advertisers uploaded their customer lists, Twitter matched users to the phone numbers and email addresses they had shared as part of their 2FA setup, which ain’t kosher.
Considering all the advertising-related chaos this quarter, it’s not a surprise that CPMs and advertiser demand were both down. Twitter expects a continued negative impact on revenue in the fourth quarter.
As it’s been for some time, Twitter remains more demand constrained than supply constrained, which means getting more advertisers on the platform is a top priority.
And so Twitter is soldiering on with continued investment in video ad formats and MAP, which should lead to more DR opportunities over time, Segal said, and hopefully attract more “always-on” advertisers to keep revenue stable when there’s more seasonality and fewer events happening in a given month.
Multiple quarters spent increasing its “engineering agility,” though, means Twitter is better equipped to address revenue-related issues, CEO Jack Dorsey said.
Hence Dorsey’s glass-half-full epitaph on Twitter’s uninspired Q3: “Still painful, but no longer [as] existential as it was in the past.”
