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Why Twitter’s Top Line Growth Decelerated in 2Q16

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Twitter losing ground in the ad space

Twitter’s (TWTR) revenue growth is declining, as you can see in the chart below. In fact, the company witnessed the slowest growth in its top line since it went public. In 2Q16, Twitter’s top line rose by 20% YoY (year-over-year) to $602 million, a much slower growth rate when compared with the 61% growth it witnessed in the comparable quarter last year.

Stagnant user growth, especially in the United States (SPY), is impacting the company’s advertising revenues as brand marketers are shying away from its platform. This is a cause for concern, as the company earns most of its revenues from advertising. Twitter’s revenues from advertisements grew 18% YoY during the quarter, reflecting a sharp decline in growth rate when compared with the corresponding quarter last year, which witnessed ad revenues growth of 63% YoY. Brand spending on its platform isn’t  growing as quickly as it should.

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Why advertisers are spending less on Twitter

It’s important for the company to drive user growth and engagement in order to attract brand marketers. However, that isn’t happening at the moment as more popular rivals like Facebook (FB) and Snapchat are eating into its market share. In turn, the number of advertisers who plan to spend less on Twitter is growing.

Twitter did make serious efforts to drive user engagement. However, its user growth showed little or no signs of improvement. Twitter is clearly lagging behind fast-growing rivals like Google (GOOG) and Facebook who remain the dominant players in the digital ad space according to net revenues.

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