Twitter beats on earnings but misses on user growth

Twitter’s stock rose slightly today after the company announced its fourth quarter earnings. It beat by a significant amount, although it missed in terms of what analysts expected for user growth.

Here are the numbers:

Revenue:

Analysts expected — $453.1 million

Twitter actual — $479.08 million

Earnings per share (Non-GAAP):

Analysts expected — $0.06

Twitter actual — $0.12

MAUs:

Analysts expected — 295 million

Twitter actual — 288 million

Twitter’s growth is slowing. It only grew 1.4 percent from the third quarter to the fourth quarter, which is its slowest user growth quarter-over-quarter in the history of it being a public company.

The mixed bag of earnings results come after a month straight of Twitter developments. The company executed on some of the new products it previewed during Analyst Day in November: Instant, algorithmically curated timelines for new users, group private messaging, and “while you were away” updates. It made small forays into expanding its advertising beyond Twitter itself. Promoted tweets will start appearing on Flipboard and Yahoo Japan, the first partners.

At the same time, investors started raising complaints about the slow user growth. One told Business Insider that Dick Costolo should resign. A CNBC analyst predicted he’d be out by the end of 2015. Twitter co-founder Jack Dorsey recently tweet stormed in support of Costolo.

There’s also been a lot of leaked Twitter news recently that’s not product related. The company recently removed employees’ access to the monthly active user number, only granting it to certain people now. In an internal Twitter forum, CEO Dick Costolo admitted that Twitter wasn’t good at handling user harassment and bullying issues, and that he takes total blame for it. And word got out that Twitter is reestablishing its partnership with Google, so you’ll start seeing more tweets in your Google searches.

 

This story is developing and we’ll update with more information from the earnings call….

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Google misses slightly on fourth quarter earnings and stock dips

Google’s fourth quarter earnings missed Wall Street expectations today, but only by a slight amount. The stock dipped down 3 percent in after hours trading.

Here are the Q4 numbers:

Revenue minus traffic acquisition costs (TAC):

Analysts expected — $14.61 billion

Google actual — $14.48 billion

Earnings per share (Non-GAAP):

Analysts expected — $7.08

Google actual — $6.88

Cost per click:

On Google.com — Decreased 8 percent in Q4

On Google’s network sites — Increased 6 percent in Q4

As The Information’s Amir Efrati pointed out on Twitter, you can see Google’s true opinion of its fourth quarter earnings by comparing its press releases from former earnings reports. This is the first quarter in a year that Google hasn’t heralded its “strong” and “great” “momentum” and “growth.”

During the earnings call, Google’s CFO Patrick Pichette confirmed that the company has halted its Google Glass project. He explained that Google will pause future projects and reset their strategy when they aren’t having the impact hoped for. This is a change in messaging from the company’s earlier line that Glass was just “graduating” to a new stage of development.

Google also discussed its Chromecast stick, saying it has seen 1 billion cast sessions since the company started selling it. Despite the bullshit metric — number of units sold would’ve been a better number — Chromecast is clearly doing better than Glass.

This story has been updated with information from the earnings call.

Here’s why Facebook got away with a 335 percent hike in ad prices

Ads dominated the discussion during Facebook’s fourth quarter earnings call this Wednesday. COO Sheryl Sandberg told analysts that the company is charging 335 percent more for each ad on average, despite the fact that the ad impressions has decreased by 65 percent.

The company says its ads have become more efficient at targeting and tracking people. Facebook is measuring the return on investment that each advertiser receives for every dollar spent. “When I sit down with clients this year compared to last year … we’re able to A/B test Facebook ads versus no Facebook ads and what the effect is on their sales,” Sandberg said on the call.

She repeated Facebook’s new advertising mantra, a tactic it’s calling “people based marketing.” The company is building new ways to measure a user across multiple devices, like phone, desktop, laptop, and tablets, instead of relying on cookies, which don’t work well on mobile.

“The ability to understand that that’s one person, to serve an ad and measure through all the way, we think is going to massively improve the efficiency of the system,” Sandberg said.

She’s not the only one who thinks that. On Google’s earnings call last quarter the company admitted it was keeping an eye on Facebook’s innovations in the mobile advertising space. At the time, analysts were concerned that Google didn’t have enough visibility in the app ecosystem, via Gmail logins, to track users across their apps and target the best ads to them.

Since many apps have integrated Facebook login technology, the company is the leader in targeted advertising for mobile. 69 percent of Facebook’s advertising revenue came from mobile in Q4, 16 percent more than in the same quarter of 2013. It’s staggering growth, given it was only two years ago it was struggling to figure out how to make money on mobile.

As for the rest of Facebook’s Q4 numbers, the company beat Wall Street estimates for the tenth quarter in a row. Its growth continues unabated and it surpassed its number of monthly active users from Q3 by 40 million.

Here are the Q4 numbers:

Revenue:

Analysts expected — $3.77 billion

Facebook actual — $3.81 billion

Earnings per share (non gaap):

Analysts expected — $0.48

Facebook actual — $0.54

Monthly active users:

3rd quarter 2014: 1.35 billion

This quarter: 1.39 billion

Other significant stats:

3 billion video views per day

890 million daily active users in December

1.19 billion monthly active mobile users

The company’s continued success comes on the heels of positive news about its social acquisitions and messaging efforts. As Kevin Fitchard reported this morning, Facebook owns the top four most downloaded apps worldwide in 2014: WhatsApp, Instagram, Facebook itself, and Facebook Messenger.

Facebook’s attempts at building new social apps haven’t succeeded quite as well — Poke was quietly shuttered, and Slingshot and Rooms have been laying low. But Zuckerberg’s lavish acquisition strategy, although occasionally jaw-dropping, appears to be working. Instagram is now believed to be worth $35 billion compared to the $1 billion Facebook bought it for.

This post has been updated with more information from Facebook’s earnings call.

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Can media do for Snapchat what it did for Facebook?

Snapchat is distancing itself from its core messaging feature with its new Discover product. Instead of offering new communication tools, it’s focusing on media content to hook users. It’s hoping that will keep people on the app longer and get them there more frequently, the same way it did for Facebook.

The time is right. Discover’s launch comes a few weeks after I reported that growth in messaging apps has plateaued, according to leaked Comscore numbers.

In the new Snapchat section you can surf bite-sized text, video and photo updates from 11 different news organizations ranging from CNN to Vice. It’s slick, sophisticated and stylish. It’s also a big departure from the original app. You can get the rundown on the details here or here.

Is Snapchat moving on from messaging?

Discover isn’t just a new feature for the ephemeral messaging app, which has an estimate of more than 100 million active users. It’s a dramatic shift in product vision, one that suggests Snapchat is moving on from chatting. It’s not abolishing private photo sharing — the image screen is still the first thing you see when you open it — but it’s now parlaying people’s engagement with the app into more revenue-friendly features. It’s far easier to stick an ad in front of a Food Network clip than it is to stick one in front of personal messages from a friend.

Left: Snapchat's Discover section; Middle: Kik's chat option with Funny or Die; Right: WeChat's chat option with Louis Vuitton

Left: Snapchat’s Discover section; Middle: Kik’s chat option with Funny or Die; Right: WeChat’s chat option with Louis Vuitton

Unlike Snapchat’s messaging competitors like China’s WeChat or Canada’s Kik, the brand content in the Discover tab doesn’t come in the form of messaging at all. Instead, it’s a self-serve broadcast format. It’s staunchly a media product, not a communication one.

Brands can still chat with users in the messaging part of the app, but it’s not a cornerstone of the Discover ad cash cow.

Since Snapchat is the leader in messaging in the U.S., its shift in business priorities could also indicate a larger change in the industry itself. Is the future of messaging in the U.S. not actually messaging at all?

The messaging industry is stagnating

The Discover tab has been in the works for a long time, but it’s launching at the perfect time as Snapchat’s growth appears to have flatlined. Comscore numbers can be inaccurate on a point-by-point basis (most media organizations report bigger traffic numbers than Comscore has for them), but in terms of more macro growth trends they’re more reliable. The analytics company found that messaging apps across the board, from Kik to WeChat to Snapchat, have stagnated.

Comscore's Mobile Media Matrix 2015

Comscore’s Mobile Media Matrix 2015

It was looking only at the 18+ crowd, and messaging users skew decidedly younger. But given the fact that Snapchat in particular has saturated the youth audience, its growth should be coming from the 18+ set.

It’s fitting timing, then, for Snapchat to branch out like this. The app seemed to be distancing itself from its former core product in its Discover intro text for users.

One Snapchat explanation screen said, “This is not social media. Discover isn’t about what’s most popular. We count on editors and artists, not clicks and shares, to determine what’s important.” In other words, this isn’t about messaging or virality. It’s not about newsfeeds or friends. It’s about something rather old-fashioned: Editorial judgment.

[pullquote person=”” attribution=”” id=”910224″]Is the future of messaging in the U.S. not actually messaging at all?[/pullquote]

Furthermore, the brands in the Discover section aren’t all young and hip. Sure, there’s the Vice and Cosmo of the lot. But there’s also CNN and Yahoo News. These traditional organizations lend a mature air to what is otherwise a very fresh, youthful experience. Perhaps Snapchat is hoping to give its older users something more to look at.

snapchat-discover

Left: A screen from Discover’s People section; Middle: From Discover’s Food Network section; Right: From the Daily Mail.

Snapchat wants to make money with media, not messaging

It’s no surprise that Snapchat thinks it will make more money off media than it could off messaging. Facebook discovered the same thing after a few years of running its newsfeed product. People stuck around and spent more time on the site when they had more content to look at than just baby pictures and wedding albums. That in turn made advertisers willing to pay more for the eyeballs.

Snapchat wants media content to have the same effect on its audience, but it’s taking a very different approach. As it emphasized in its intro text mentioned above, this isn’t about “most popular” it’s about “what’s important.” The unwashed masses will not decide that ice bucket challenges will rise to the top. Media editors and Snapchat employees will.

Facebook, Twitter, and Pinterest have a new, very different sort of competitor in the media-carrot-to-engage-users game.

Snapchat’s initial partners were thrilled to tell the world they were picked first for the Discover tab. I received multiple pitches this morning from companies like CNN and Fusion heralding exactly that. Fusion wasn’t included in the initial launch of the 11, so it’s a sign that more media brands (like MTV) may be coming. Aside from tapping Snapchat’s huge base of users and turning them into viewers, it also gives them the caché of being on the cutting edge.

But as always, media companies walk a dangerous tightrope in partnering with a tech application. As Mathew Ingram has written about many times, tech platforms’ interests haven’t aligned with media companies in the past. Although Facebook might have given big traffic boosts to organizations like Upworthy or Buzzfeed, it’s a tenuous agreement in the long term. The traffic a tech company giveth, it can easily taketh away with a tweak of an algorithm.

Snapchat is making its own risky bet. It’s hoping it can become a money-making platform by becoming a media source, even if that means making messaging less of a priority.

It’s a big shift for the company’s brand, image and functionality. Let’s see if it works.

Yahoo stock rises as it turns Alibaba investment into separate company

Yahoo is splitting its remaining Alibaba shares into a separate company called SpinCo. The move will help Yahoo avoid the tax pitfalls of the investment.

The news came Tuesday as Yahoo reported its fourth quarter earnings. In after hours trading, Yahoo’s stock price increased as much as seven percent. Investors clearly approve of the plan for the cash.

The presentation deck for the plan explained that part of the goal of spinning off the Alibaba investment is to provide transparency for investors into Yahoo’s core business. SpinCo will still be answerable to Yahoo shareholders. Take a look at the full deck here. This image visualizes the split:

Page 4 from the Yahoo deck on its Alibaba investment split off

Page 4 from the Yahoo deck on its Alibaba investment split off

In terms of its fourth quarter earnings, Yahoo met expectations. Here’s the numbers:

Revenue

Earnings per share

On the earnings call, CEO Marissa Mayer emphasized the split between Yahoo’s core business and its new mobile, video, native, and social efforts which she deemed “MaVeNS.” She went so far as to insult Yahoo’s previously mobile efforts, prior to her arrival, calling it a “confused, web-based mobile strategy” compared to the company’s current “beautiful, native strategy.”

The MaVeNS properties brought in over a billion dollars in 2014, leading Mayer to conclude the company earned that revenue “basically from nothing in just two years.”

At the end of the call, she hinted that the company might build or acquire more messaging or communication applications because it builds on the company’s native, social and email strengths.

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This story has been updated since publishing with information from the earnings call.

Snapchat’s chief money man left the company. But why now?

A week after news broke that Snapchat was charging $750,000 for one day of ephemeral ad placement, Snapchat’s head of revenue Mike Randall is out, according to a Re/Code report. Randall ran the company’s advertising endeavors for only seven months before his departure.

It’s unclear whether he’s leaving voluntary or if CEO Evan Spiegel forced him out. It’s also not obvious whether Randall’s departure is indicative of the company struggling with its nascent sales efforts, or if he just wasn’t a fit. I’ve reached out to the company for more information on what happened and will update this if I hear back.

Randall’s hire was originally a big boon for Snapchat since the company recruited him away from Facebook, where he oversaw advertising partnerships with app developers. At Snapchat, Randall reported to Emily White, another Facebook recruit who jumped ship for the ephemeral app. During his brief tenure he was responsible for the company’s “business and marketing partnerships,” i.e. its forays into advertising.

In the recent leaked Sony emails, information about Spiegel’s priorities and Snapchat’s business strategy came to light. Specifically, we learned that Spiegel was eager to start bringing in revenue for the company despite its young age. He believes a bubble pop is approaching in the app space and wants to make sure Snapchat can support itself before that happens.

Comscore stats that Gigaom obtained suggest the company’s growth among the over 18 crowd peaked in March and has been declining ever since. Snapchat’s biggest audience is youth but the company has saturated that market in the United States at this point. Given Spiegel has raised hundreds of millions of dollars in investment funding and turned down an acquisition offer in the billions from Facebook, it needs to build a viable company that can stand on its own.

Facebook waited seven years to introduce advertising, Twitter five, and Pinterest and Instagram four. Snapchat also comes in on the early-ish end at four years old.

Uber’s raking in money in SF, but the story is complicated

Uber is now on a pace to make $500 million a year in revenue in the San Francisco market alone, according to CEO Travis Kalanick. Kalanick spoke on the matter over the weekend at a conference in Munich, and Business Insider reported the news Monday, making the argument that Uber is far larger than the taxi industry, which Kalanick claims only brings in $140 million a year in SF. I’ve reached out to the SFMTA to confirm that number and will update this if I hear back.

Prior to today, the most recent SF revenue stats from Uber surfaced last November, also via Business Insider. At that point, the leaked Uber presentation showed the company’s run rate in SF was $212.4 million based on its December 2013 revenue. Roughly a year later, it’s at $500 million — so the company has doubled in size in the city.

Originally, there was a significant, missing piece of information from Kalanick’s remarks. As Kevin Roose pointed out on Twitter, Kalanick didn’t explain whether $500 million includes the money Uber has to pay drivers.

The company later told me that it does. Uber takes a roughly 20 percent cut of each transaction, giving the rest of the money to its independent driving partners. Including the full booking fee in its revenue statistics is the difference between gross revenue (all money transacted) and net revenue (considering certain basic deductions).

Uber is touting its gross revenue to demonstrate its size, but some have questioned whether that number accurately represents the size of Uber’s business. $100 million — Uber’s cut after it pays out drivers — is a far cry from $500 million, after all.

For the time being, Uber can’t markedly shrink the cut drivers are taking, so its real business is arguably its 20 percent cut, not the full amount of booking revenue. Either way, the stats show the company is still growing at a rapid, staggering rate.

 

This story has been updated to include Uber’s confirmation that $500 million is its gross yearly revenue in SF, not net yearly revenue.

On the way to $220M in funding, Instacart quietly changed its business model

In its early days, grocery store delivery startup Instacart made its money two ways: Through delivery fees and product markups. It charged customers more for individual groceries than their in-store price.

But in the last year, the company shifted its revenue strategy. It is allowing some grocery store partners to price their own goods on Instacart. In return, the grocers pay Instacart a fee to service their locations.  It explains why for some grocers the products cost the same on Instacart as they do in store, but for others the price is more (or, confusingly, less).

“We don’t want to be in the pricing game,” Instacart’s head of business Nilam Ganenthiran told me. “There’s exceptions, but that’s generally true. Retailers outsource their e-commerce to us for a fee.”

Although there’s variations in how each partnership is structured, Ganenthiran said the fee, charged to grocery store retailers, is now the company’s “primary model.”

Instacart never made any official announcements about its change in business strategy. I didn’t find out until questioning Ganenthiran about its profit margins. As a result, earlier this week when Instacart received its spate of news coverage over its $220 million funding and reported $2 billion valuation, some outlets misreported Instacart’s business model.

“There has been a perception of the markup model being our primary economic engine due to how we started 2.5 years ago,” Ganenthiran told me. “Our model actually has been evolving.”

Most publications didn’t realize that. The Wall Street Journal went so far as to write an additional story, separate from its funding brief, breaking down a potential Instacart profit on a typical grocery store transaction. The numbers didn’t look good, suggesting Instacart might make as low as $1.40 on an order of 15 basic items.

But since Instacart’s revenue isn’t primarily tied to product markups anymore, that may not be representative of its profit margins.

Instacart wouldn’t tell me whether its grocery store partner fee is calculated per item, per order, per customer, per month, or some other variant. It also wouldn’t disclose how much that fee is. Neither would Whole Foods when I reached out to them for comment, and Safeway didn’t respond. Without knowing what grocery stores are paying Instacart, it’s hard to deduce the company’s potential profit margins on each delivery. “There’s different strategies with different partners,” Ganenthiran explained.

In theory, it’s much smarter for Instacart to charge grocery stores a fee than for it to eke out profits on product markups. That kind of partnership makes grocery stores more amenable to improving Instacart’s efficiency (like offering the company its own personal checkout line). It also shields Instacart from the risk of variable food prices. Ganenthiran said, “Most grocers are past the tipping point where they understand consumers want this service.”

Will Pinterest prove its worth in 2015?

The next year will be the most important one of Pinterest’s life. Until now, the company has focused on its application and its audience, to the detriment of its coffers. It had the luxury to ignore money because it raised a nosebleed $764 million in venture funding to sustain itself. Like most adventurous startups, the money was raised on an unrealized, untested, uncertain premise: That advertising on a visual inspiration application would be highly lucrative.

Come New Year’s Day, that hypothesis will be put to the test for the first time on a large scale. After endless preparation, Pinterest’s year of reckoning has arrived.

In 2015, any brands will be able to do native advertising on Pinterest by paying to promote pins that appear alongside regular Pinterest content. Companies can use Pinterest’s reservation-based system, paying set prices to make sure their ads appear in people’s feeds. The auction-based system, where advertisers bid against each other, is still in beta.

Pinterest has been beta testing reservation-based promoted pins with a select group of partners since September 2013, moving slowly to make sure it nailed its advertising process and didn’t scare off users. According to Pinterest’s blog post about the wider-scale release, the beta test was hugely successful. Like regular pins, promoted pins are shared an average of 11 times, resulting in additional free impressions for advertisers (they only cough up money for the initial impression). These pins continue to be seen and shared after the advertiser stops paying to promote them.

The quiet social company decided to herald its big advertising news when the least amount of people would see it: Over the holiday break. It broke the story by publishing a blog post that ran at the same time as a New York Times feature on the news.

This is par for the course for Pinterest. The company regularly holds big parties at its office to celebrate the introduction of new product features, but when it comes to its revenue stream it prefers not to raise a fuss.

It’s possible that Pinterest is nervous about its reckoning moment and wants to experiment with advertising outside the prying eyes of the public. It’s hard to get to a $5 billion valuation in Silicon Valley without having brought in a cent of revenue. At this point, the stakes are high for Pinterest’s investors and the path is risky.

In the next twelve months, we’ll learn for the first time whether investors overvalued Pinterest or if the company is worth the war chest of funding it’s sitting on. If it’s the latter, [company]Google[/company] better look out. It has another rival creeping up to compete in the category of search.

Pinterest’s image-heavy application may give it a distinct advertising edge in the visual web.