Twitter released its Q2 2022 report on 22nd of July and it triggered a discussion about how the results missed analysts’ estimates on earnings, revenue, and user growth. BestBrokers analysts dove deep into the full financial report published on sec.gov and found out that Twitter heavily focuses on investing in research and development (R&D), with its R&D costs increasing by 52% YOY.
For the Q2 ending June 30, 2022, the number of average monetizable daily active users (mDAU) was 237.8 million vs 238.08 million expected, while revenue was $1.18 billion vs $1.32 billion expected, according to the estimate by Refinitiv.
The total costs and expenses was $1.52 billion vs $1.16 billion in the same quarter last year, an increase of 31% year-over-year. However, it is important to note that nearly 30% of the total costs and expenses went towards research and development. The R&D expenses in Q2 2022 were $454.9 million vs $299.9 million for the same period last year, representing an increase of 52% YoY.
Why does Twitter consider R&D growth to be so important?
Research and development costs include all expenses related to:
- maintenance of the existing technical infrastructure;
- maintenance of the programming side of the platform;
- development of new features and services, including the Twitter Blue subscription service.
Clearly, Twitter’s effort is focused not only on maintenance but also on innovation and development of more interesting features in order to attract more active users and boost its mDAU.
The main feature, that has been under development since June 2021, is Twitter’s subscription service, branded Twitter Blue. The service is available in the United States, Canada, Australia, and New Zealand and allows users to:
- undo a tweet
- edit a published tweet
- read news ad-free
- and more
“While very small as a percent of revenue today, we believe Twitter Blue and other subscription-related revenue represents a significant opportunity for Twitter over time,”
– Twitter said.
Research and development expenditure is a matter of paramount importance for a social media platform like Twitter to stay competitive. The company has been overly reliant on ads revenue and, by increasing its R&D expenditure, it aims at adding an extra steady revenue streams. It is interesting to see whether the company will retain with Twitter Blue as the only subscription option or it will add extra tiers.
“There are a lot of social platforms, competing for advertisers’ money, but current economic climate forces companies to downsize their marketing budgets. This is another reason for Twitter to focus on monetizing its user base via subscriptions – a revenue stream that has proven to be very successful for a number of online platforms.”
– commented Alan Goldberg, analyst at BestBrokers.