With Slowing User Growth, How Much Can The U.S. Contribute To Twitter’s Top Line Growth By 2019?
Twitter (NYSE:TWTR) reported massive growth in revenues over the first half of the decade, driven by a rapidly expanding user based complemented by the company’s ability to effectively monetize that user base. Twitter’s global user base surged from just over 40 million to over 200 million monthly active users (MAUs) in the first half of the decade, while average revenue per user (ARPU) rose from 65 cents per user to $7.30 in the same period. The U.S. segment has been instrumental in driving ARPU for Twitter in this period, with ARPU increasing tenfold from $2 to over $21 through the first half of the decade.
However, the growth rate of both these metrics slowed down in 2016 and 2017 in the U.S. MAU growth slowed down to low single digits in 2016 before declining in 2017. Going forward we expect this to improve gradually in the near term before accelerating in the long run. We estimate that Twitter can report 6-7% revenue growth in the next two years from $2.45 billion in 2017 to $2.78 billion in 2019. Of the $335 million added to net revenues, we estimate that the company’s U.S. segment will contribute around $160 million, or 48% of the incremental revenues. We arrive at this estimate from Twitter’s key growth metrics such as MAUs and ARPU. We have summarized our expectations on our interactive dashboard platform. If you disagree with our forecasts, you can change the key drivers for Twitter’s international segment to gauge how changes will impact its expected revenue.
Estimates for Key Growth Drivers in the U.S.
Twitter’s U.S. segment has been the largest contributor to net revenues in recent years. However, the contribution from the U.S. segment to Twitter’s top line has consistently gone down as the user base growth has somewhat saturated. The growth in the total MAUs has gone down from mid-to-high double digits in the first half of the decade to low singe digits in 2016 and 2017. We forecast the total total MAUs to increase at 2% annually to 71 million by 2019 from under 68 million in 2017.
It is important to note that while MAU growth has slowed down, the total number of daily active users (DAUs) has increased at double digits in each of the last 8 quarters. This suggests that while the user base is not expanding as fast as historic rates, the active users on Twitter have an increasingly higher engagement rate. This is a healthy indicator for future growth for Twitter, as it can help monetize users better. In the next two years, we expect U.S. segment ARPU to increase from $20.60 in 2017 to $22.30 by 2019. While this is still a modest growth rate, we expect the growth rate in ARPU to accelerate in the long term.
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