Did The Complex Answer Just Arrive Via Twitter?

Earlier during the week I wrote an article titled: “Simple Question With Complex Implications.”

In it I argued there was one simple question concerning the entire “ads for eyeballs” complex. That question was this…

“If there’s demand for something, and it’s effectual: Why are prices falling?

Advertising is not something that follows the “commodity” pricing model. Worthless advertising does, but not effectual.”

That was in direct response to the 300% comparative loss of value per click on Google™ from the same time the year prior. e.g., -7% in 2016 to -23% today. Yes, that’s a loss of triple the amount just a year prior. But the total number “clicked” actually rose over 50% boosting the total revenue higher.

I used the “300%” figure to bring attention to that discrepancy for a reason, because most people I spoke with glossed right over that point and only heard (or read) “revenue increase.” The issue with doing that is – if you don’t understand the how, and why that make up the numbers, it’s easy to fool yourself ( or allow yourself to be fooled) into believing it represents one thing, when it actually, could mean quite another.

If you think I’m only trying to play “fast and loose” with the numbers myself, I would like to have you think of it this way using the following…

If the report was an increase of net profits from 7% to 23%. Do you think the next-in-rotation fund manager cadre would say “That’s a 16 percentage point increase in net profits!” Or, do you think you would hear something along the lines of: “That’s triple the amount expected! My friends that’s a three-fold increase or, if you will, some 300% gain in profit per click from the year prior. There’s no stopping this money train, get aboard now!!!”

See my point? i.e., 7 X 3 = 21, that’s “triple”, and/or “300%” is also another way of expressing triple. When it comes to marketing – it’s all about how you want to spin it without outright lying. That’s why you need to know what, and why, certain expressions are being used. Especially when it comes to anything concerning Wall Street, for it’s also – what you don’t hear – that should also cause you to look closer. And it’s exactly for that reason I used it myself. Because it caused the reaction I hoped it did when I said it. i.e. “Wait…What?”

With that said, here’s why knowing what the “numbers” being reported may, or may not, represent is paramount as I stated in the article. To wit:

“So here’s why this is important: It is currently an accepted meme that both Google, as well as Facebook, are garnering most of the mobile ad dollars via the game of attrition. In other words, as advertisers pull their ads or campaigns from differing venues that have shown to be ineffectual, they are either moving some of those dollars there, or back to older venues such as TV or radio. And in some cases neither, in an effort to stop the hemorrhaging of throwing anything everywhere with little to nothing to show for it – except big ad bills.”

Because now we move on to both yesterday after the close of the “markets” report by Facebook™, and today’s before the opening bell reporting of Twitter™, and see if any of what I argued using the Google construct fits.

I went out for my usual daily run yesterday afternoon as Facebook reported. When I returned I was besieged by notes and calls from friends and colleagues asking me (more like ribbing me) about what I thought of the “amazing beat!” And if I wanted to “rethink” my position when it comes to social-media (and Facebook in particular) with such obviously “crushing it” type numbers.

My answer as usual was “No.” However, I did have to agree the report was impressive no matter how one looked at it currently. And that’s the key word “currently.” Because after I began looking deeper into it, and once Twitter announced this morning? My original “no” went to “11” as in “H#ll no!” Here’s why…

This morning Twitter delivered disastrous numbers for anyone still “believing” in the dream of Jack Dorsey’s turnaround strategy and execution. (Imagine that, I wonder who could have seen that coming?)

Yet, what caught my eye were two things I have been arguing for quite some time in response to ad revenue for Twitter rising going into the end of the year. (e.g. Q2 – Q4 2016.) The most common explanation was that Twitter was getting better and revenues were going the right way because of better execution and more. I doubted that reasoning entirely, in fact, I said on numerous occasions:

“I believe all this buying in social is a consolidation process where advertisers are going to concentrate and throw everything they’ve got in one last pitched effort going into the holiday shopping season.”

Guess what? Not only have ad revenues reversed since the holidays – they’ve now undercut YoY comparison by some 14%. But that’s not all – their actual user base in the U.S. has now begun to shrink. That’s not a good sign for the entire social complex in my opinion. Let alone, for any “turnaround” hopes.

So if we weigh the above with what Facebook reported is there anything to extrapolate? I believe there is, and it comes from Recode™. To wit:

“Facebook has been warning investors for the past year that its revenue growth would slow “meaningfully” in 2017 because it has finally run out of places to put ads in News Feed.

So far, that slowdown hasn’t really happened. At least not meaningfully, though year-over-year revenue growth has declined each of the past four quarters.”

Yes, you read that correctly, YoY revenue growth has actually declined, and declined sequentially. That’s a metric that’s going in the wrong direction when what’s seen as “all the competition” is collapsing simultaneously. At least when it comes to their share of the “ad pie” that is.

Now piggyback the above with what I’ve iterated ad nauseam e.g., “I argue we’re currently in a consolidation process, which is exactly what I would expect if we are indeed in the latter stages – before it all falls apart.”

I am of the opinion Twitter’s latest report, along with Google’s are proving that argument out. Not to mention the IPO disaster still unfolding.

So where do we go from here? Well, nobody really knows. However, here lies the issue today – and is this:

What happens to Facebook the moment advertisers no longer consolidate, and just decide to just stop throwing money into what is increasingly appearing to be nothing more than some black-hole or drain, with little to no results to show for it – except the bill?

After all, it was only one reporting quarter ago that the CFO of Facebook himself stated as to warn he expected a “meaningfully” slowdown in ad growth “particularly pronounced as we get into the second half of 2017.”

Was this quarter just the result of being the final of last-ditch efforts to throw the remaining ad budget against the “wall” and see if anything sticks? And if it is?

See Google, Twitter, and all the others current price action “pictures” for clues.

© 2017 Mark St.Cyr