Tech Transformers

Twitter used a story about Wendy's and chicken nuggets to get investors excited about its ad business

Key Points
  • Twitter's ad engagement grew 139 percent year-on-year in the first quarter.
  • It said it broadcast more than 800 hours of video in the first quarter which helped boost engagement.
  • But it warned ad revenue will lag user growth in 2017.

Earlier this month, a Twitter user by the name of Carter Wilkerson sent a tweet to fast food chain Wendy's asking for a year's supply of free chicken nuggets. To his surprise, Wendy's agreed if he could get 18 million retweets.

So far, Wilkerson is on about 3.3 million retweets and the funny episode was referenced on Wednesday in Twitter's letter to shareholders as it announced its first quarter results. Twitter used Wendy's example to tell investors that its platform is "the best place for advertisers to drive brand perception".

Twitter has always said that its service is where real-time conversation happens and it's hoping investors will believe this is the case.

Jack Dorsey, co-founder and CEO of Twitter
Drew Angerer | Getty Images

On Wednesday, the social media site reported first-quarter earnings that beat analyst expectations and showed decent growth, something it has struggled to do in recent quarters. And even more encouraging for investors were two key advertising statistics it touted:

  • Total ad engagement grew 139 percent year-on-year in the first quarter
  • The average cost per engagement fell 63 percent year-on-year

Investors have been concerned with Twitter's ability to grow users and therefore advertising. Issues such as bot accounts, abuse on the platform, and lack of engagement have all been cited as worries. But the latest numbers should give a boost to the company and hints that video will play a big part in engagement growth.

A major problem Twitter has had is monetizing users but rising engagement will help it to do that. Engagement was "driven by a continuing mix shift towards video ad impressions and higher video view rates from product improvements such as video quality optimization and latency improvement," according to the company.

Twitter needs to change complete business model: Pro

While total advertising revenue for the quarter was $474 million, a decrease of 11 percent year-over-year, Twitter has flagged up already that this will continue to lag audience growth in 2017. But its shares were up nearly 11 percent in pre-market trade because of the encouraging noises around the ad business.

Twitter has focused heavily on video and is doubling down on it given the success it is seeing. The company said it streamed more than 800 hours of live premium video from content partners reaching 45 million unique viewers, a 31 percent increase from the fourth quarter. It has struck partnerships with a number of organizations to boost its content, including broadcasting weekly Major League Baseball games and even the WBO Lightweight boxing world championship.

In an interview with BuzzFeed published Wednesday, Twitter Chief Operating Officer Anthony Noto said the company plans to "definitely have 24/7 (video) content on Twitter".

Another positive note in the earnings was that daily active users (DAUs) rose 14 percent year-on-year, highlighting more people engaging with the service on a daily basis, something that will help advertising, an analyst said.

"DAUs grew 14 percent and they accelerated for the fourth straight quarter and whilst revenue lags user growth, the signs are encouraging," Neil Campling, head of global technology, media and telecom research at Northern Trust Capital Markets, told CNBC by phone.

"You see accelerating user growth helping to accelerate engagement effectively. Twitter has massively simplified its advertising product portfolio, and it enables advertisers to understand return on investment metrics, at a time when the platform is growing in terms of usage. Those signs are encouraging."