Twitter : Q4' 2021 Earnings Transcript

Twitter Q4 2021 Earnings Report

SAN FRANCISCO, CALIFORNIA

February 10, 2022

PRESENTATION

Operator

Good day, ladies and gentlemen, and welcome to the Twitter Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to your host, Krista Bessinger, VP, Investor Relations. Please go ahead.

Krista Bessinger Twitter, Inc. - VP, Investor Relations

Hi, everyone, and thanks for joining our Q4 earnings conference call. We have our CEO, Parag Agrawal and CFO, Ned Segal, with us today. We published our shareholder letter on our Investor Relations website and with the SEC about an hour ago, and we hope that you've had a chance to read it. As usual, we'll keep our opening remarks brief so that we can get right to your questions. As a reminder, we will also take questions asked on Twitter, so please tweet us at @TwitterIR using the #TWTR.

During this call, we will make forward-looking statements, including statements about our business outlook, strategies and long-term goals. These comments are based on our plans, predictions and expectations as of today, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent 10-Q and upcoming 10-K to be filed with the SEC.

Also during this call, we will discuss certain non-GAAP financial measures. We have reconciled those to the most directly comparable GAAP financial measures in our shareholder letter. These non-GAAP measures are not intended to be a substitute for our GAAP results. And finally, this call in its entirety is being webcast from our Investor Relations website, and an audio replay will be available on Twitter and on our website in a few hours.

And with that, I'd like to turn it over to Parag.

Parag Agrawal Twitter, Inc. - CEO

Hello, everyone. Thanks for joining us today. Since this is my first earnings call, I will take a step back and talk about where we are as a company. I'll cover 3 things: our strategy, our execution and what this all means for shareholders.

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I'll start with our strategy. Our purpose is to serve the public conversation, and Twitter is the best place to find out what's happening. It is unique and it is differentiated. What makes Twitter great is, one, the selection of conversations available on our service, a broad set of people and content on a range of topics that are relevant to the moment; and secondly, how personalized Twitter is to your interest. You can instantly find relevant content across interest from sports to investing and engage with it. The strategy and plans we shared with you about a year ago is meant to continue strengthening these 2 differentiators, around personalization and selection. And we use these to inform and bring cohesion to our work across both our consumer and revenue focus teams.

Let me discuss a couple of examples. First, our work to improve personalization includes us developing a better understanding of customer interests, sometimes through improved machine learning or through building products like followable Topics. It also includes us getting better at matching creators and content to consumers. This enables us to create more relevant and personalized products that increase daily utility and also enables us to serve more relevant ads, and can be particularly helpful in improving return on ad spend for performance-oriented advertisers while also improving the ads experience for our customers.

Next, let's talk about selection. I want to describe how several of our new products that we've been iterating on at a rapid cadence for them. I'm talking about Spaces, Communities, Newsletters, Professional Accounts, creator monetization efforts around Super Follows and Tipping and also a test with shopping and commerce. All of these come together to enable an ecosystem of products that enable content creators, publishers and businesses of all sizes to build and connect with their audience. Together, I believe these will enable more unique content and more content around the long tail of topics. Today, we do well when it comes to topics of broad interest: politics, sports, entertainment, music. But these new features will help expand the range of topics being discussed on Twitter. These will enable opportunities for us to better monetize through more relevant and contextual advertising, but more importantly, also enable our customers to monetize.

Next, I want to talk about execution. Because strategy isn't enough to deliver outcomes, we'll need to execute. In my first 10 weeks on the job, I have been focused on improving our execution using 3 key groups: increased accountability, faster decision-making and a focus on doing fewer things in pilots. Let me talk about 2 specific changes we've made. First, I've made strategic organizational changes focused on creating clarity and ownership in the organization. This enables faster decision-making and increased accountability. We're now operating under a GM model, general management model, where cross-functional resources for all product development and the budget to support operations are owned by GM across consumer, revenue and core technology who are responsible for delivering output. Second, we are increasing our attention on important data and metrics across the company starting at the top. This enables not just more accountability but also faster learning. It lets us see how people are

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using our products, what's working and what is it and why, and with that based on what we can learn.

Now let me turn to what this means for shareholders. First, our strategy and our goals for 2023 that we shared about a year ago are not changing. What is changing is an increased focus on execution designed to deliver the outcomes our customers and you all expect from us. Second, we are investing to deliver growth given the massive market opportunity we see. We've done reallocations to fund many incremental investments for 2022, and there is also efficiency work underway that will pay off even more over time. The goal is to create optionality for the future to either improve margins or invest in high-value opportunities, making Twitter an even larger and more profitable company over the long term.

I will close by sharing that I see a strong urgency to improve our focus and execution but also a lot of confidence in our strategy and our team. Twitter serves a very important role in the world, and we take our responsibility to make it the best it can be very seriously.

With that, I want to hand it off to Ned.

Ned Segal Twitter, Inc. - CFO

Thanks, Parag, and hello, everyone. I'd like to cover our results, our outlook and our buyback before turning to your questions.

On the results. Q4 closed out a record year for Twitter. Total revenue for the quarter grew 22% year-over-year to $1.57 billion, and total revenue for the year grew 37% year-over-year to $5.08 billion. mDAU grew 13% year-over-year to 217 million and U.S. mDAU grew 1 million sequentially, both in line with our expectations. During the quarter, we continued to make progress across our portfolio of consumer and revenue products. We iterated on Spaces, Topics, Communities and our onboarding flow, all in service of growing our audience. Performance ads grew faster than ad revenue in Q4 driven by MAP. Our work here is paying off. Over 2 million businesses identify themselves to us since the launch of Professional Accounts in Q3, giving us fertile ground to market ad products to a growing base of accounts that are eager to reach their customers on Twitter.

On the outlook. Our strategy remains the same, invest to drive growth and deliver on our goals of 315 million mDAU and $7.5 billion or more in total revenue for 2023. In early January, we closed the sale of MoPub, generating proceeds of approximately $1 billion and enabling us to invest even more resources in performance ads, SMB and commerce. In 2022, we expect revenue to grow in the low to mid-20s range versus 2021, excluding MoPub and MoPub Acquire, with performance revenue growing faster than brand. We expect total cost and expenses to grow in the mid-20% range in 2022 versus 2021, excluding 2021's onetime items with the number of buys that we see the opportunity to drive faster growth in revenue or mDAU. Expenses in 2022 are expected to ramp in absolute dollars over the course of the year as we

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invest, with headcount growth of approximately 20% and a focus on R&D. We're pleased with the decisions we've made to reallocate resources and to make trade-off decisions to hold expense growth to these levels.

In 2022, we expect mDAU growth to accelerate in the U.S. and international markets over the course of the year. These expectations are informed by the data that we see, which has been driven by our work to help people successfully create new accounts and reactivate existing accounts to get more value out of Twitter by finding what they're looking for faster. Our work is compounding to deliver results, and we're seeing it in some of the important lead indicators.

In Q4, we saw more than 25% year-over-year increase in the number of people who come to Twitter every day to either create a new account or reactivate an existing account and a 35% year-over-year increase in daily sign-ups.

Lastly, let me turn to our new share repurchase plans. In Q4, we repurchased $266 million of stock via our share repurchase program that had been announced in 2020, bringing our total repurchase to $1.18 billion to date. I'm excited to share that our Board of Directors has just authorized a new $4 billion share repurchase program, which is effective immediately and replaces the balance of approximately $819 million from our prior $2 billion authorization. As part of the new program, we intend to enter into a $2 billion accelerated share repurchase program and plan to repurchase the remaining $2 billion over time. We'll continuously evaluate efficient alternative fees and cash on hand to fund the program, including accessing the capital markets subject to market conditions.

In summary, we're pleased with our results, our strategy and our structure, and we're working hard to deliver improved execution, which will lead to even better results in 2022 and beyond.

Let's turn to your questions.

Krista Bessinger Twitter, Inc. - VP, Investor Relations

Thank you. Operator, we're ready for questions.

QUESTIONS AND ANSWERS

Operator

(Operator Instructions) Our first question comes from Doug Anmuth from JPMorgan.

Douglas Anmuth JPMorgan Chase & Co

You mentioned the strong growth that you're seeing in important lead indicators for future mDAU growth. Just curious if you could talk about what that means for retention and how you can improve that going forward, and how you think about the drivers of mDAU growth and the acceleration through '22 just beyond the using comps?

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Parag Agrawal Twitter, Inc. - CEO

Thanks for the question. As we've shared, we have line of sight to hitting our goal of 315 million mDAU at the end of 2023, and some of this is informed by the early lead indicators we're seeing. Just to talk about sort of the growth funnel of mDAU as we see it.

It's important to think about the very top of the funnel where people show up to Twitter on a daily basis to either create a new account or reactivate an existing account after being away for 30 days. By encouraging people who use Twitter on a logged-out basis to log in, we created a mechanism where they're able to achieve more daily utility. In Q4, as a result of this work, we saw a 25% year-on-year increase in the very top of the funnel.

Further, we've done work to remove friction for people as they sign up through incorporating things like single sign-on. As we've done this work, this was part of what drove the 35% year-on- year increase in daily sign-ups. As you think about all of the users that are coming into Twitter to find value, as you think about the strategy we described earlier around using the great selection of content we have on our service and our ability to create increasingly personalized experiences through both investments in machine learning and also creating products like followable Topics, what you see is us creating really personalized, relevant experiences for people so that they keep coming back to Twitter on a daily basis. And as you see all of this work sort of playing forward a couple of years, we see confidence in us getting to the 315 million mDAU.

Operator

Our next question comes from Justin Post from Bank of America.

Justin Post BofA Securities,

Maybe one about the quarter and one about big-picture revenues. First on the quarter, can you just talk about how impressions were down and CPE is up, what you were doing within the ad stack to drive that? And then second, maybe just for Ned. It looks like guidance is maybe around $1 billion. I appreciate the full year outlook of revenue growth this year. But you need $1.5 billion next year to get to $7.5 billion. What are you thinking could help accelerate growth as we work through the next 2 years?

Ned Segal Twitter, Inc. - CFO

Justin, thanks for the question. I'll jump in on both of them. First on the ad metrics. So total ad engagement decreased 12% year-over-year and cost per engagement increased 39%. And there are a variety of things that can cause these to move in one direction or another. But in this case, we saw a mix shift to performance ad products, which, as you know, typically have a higher threshold to be an engagement. At a brand ad, sometimes you just need to see it for it to be an engagement whereas when there's a call to action to click through to something, the threshold is higher. And so sometimes you can show great ads to people and they'll be more

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