Q2 2019 Earnings Call

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time I would now like to turn the call over to your host Krista Bessinger, Vice President Investor Relations. Please go ahead.

Hi, everyone and thanks for joining our Q2 earnings conference call, we have Jack and Ned with US today, but before we get started I wanted to cover a few housekeeping items.

First please note that as of Q2, we will no longer be providing a slide deck as part of our quarterly disclosure package. All information that was previously provided in our slide deck is now available in the selected company metrics and financials, PDF, which is posted on our IR site.

Next I just wanted to remind everyone of the format for our call. We published a shareholder letter on our Investor Relations website and with the SEC about an hour ago and hope everyone had a chance to read it.

Because the letter has a lot of detail we will keep our opening remarks brief and then dive right into your questions.

We will also take questions asked on Twitter. So please tweet us at Twitter IR using the cash tag Tw TR.

Also during this call we will make forward looking statements those are things like our outlook for Q3, and the full year of 2019, and our operational plans and strategies.

Our actual results could differ materially from those contemplated by our forward looking statements and you should not consider our reported results as an indication of future performance.

We're making these forward looking statements based on information available to us as of today and we disclaim any duty to update them later required by law.

Please take a look at our filings with the SEC, especially in the risk factors section in our most recent 10-K and in our 10-Q s for a discussion of the factors that could cause our results to differ.

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 Jack.

Thanks Christy.

Good morning, everyone. Thanks for joining us today.

Before we get into your questions. We wanted to make a few remarks.

Q2 was a really strong quarter for us with revenue increased 18% year over year.

And monthly daily active growth accelerating to 14% really proud of our results and also the work and the effort that went into it.

As you all know health of the public conversation remains our top priority.

Our focus in this quarter was ensuring that our rules and how we enforce them are easy to understand this quarter, we refreshed our rules with simple and clear language.

We expanded our rules against hateful conduct to include language that <unk> humanized as others on the basis of religion.

And we defined content that is of public interest on Twitter and introduced a new notice that provides additional clarity when we leave up certain tweets that violate our rules.

And initiative that has been really important to us and one we've made a lot of progress on is to proactively identify and address malicious behavior. This.

It means that removing the burden from the victims of abuse and harassment on our service and.

And proactively identifying those tweets and making sure that our agents are well equipped to take actions on them.

This resulted in an 18% drop in reports of Spammy or suspicious behavior across all tweet detailed pages.

Which are the pages that show the replies to any given tweet on our service.

And the consumer App, we're moving a lot faster and we're seeing some much larger gains.

We're providing more relevant content in People's timelines based on what they're engaging with in near real time.

We're expense, we experiment with new ways to customize the timeline when you have much easier for people to follow what's happening within their specific interests.

This time using lists they've created or to which they have subscribed.

We have been making a lot of progress on international as well breaking news alerts is one example, we're delivering push notifications as breaking events happen in real time, which is now available in more than 10 countries and we're enabling people to select the preferred language on the in the onboarding flow and on the settings page, allowing people to explicitly.

Net which language they want to see content. In this is currently live on Android in 13 countries and rolling out on iOS soon.

Another big initiative for Us has been to make Twitter feel more conversational.

We've been working to label replies in a clear way testing ways to make it easier to follow and join conversation, which replace with replies for various participants in a conversation, including the author mentioned and following.

And our prototype App Tw, GTR, which we call Little T has been moving quickly we launched four iterations in this quarter quickly.

Quickly learning and refining with each iteration one.

One example, recently is people were finding it difficult to quickly like replies. So we added a swipe to like gesture for a fast way to like replace.

This was well received so we added support for swipe to like for all tweets in the prototype App.

We continue to learn from this prototype or iterations and believe we're getting closer to launching a new experience in the main Twitter app that will make conversations much easier to follow and participate in.

With that I'll hand, it over to Ned.

Thanks, Jack before we get into Q&A I just wanted to highlight a couple of points. We feel good about our performance in Q2 with <unk> growth of 14% and revenue up 18% or 20% on a constant currency basis with particular strength in the United States. We're also very pleased with the pace of hiring up 20% year over year in Q2.

Which is an acceleration from 18% last quarter, we now expect full year head count growth of approximately 20% in 2019, the combination of our conviction in our strategy and execution and our ability to recruit and retain key talent is allowing us to increase head count growth. We continue to expect GAAP operating expenses for the full year to grow.

<unk>, 20% year over year with expenses ramping over the course of the year.

You will note that our guidance range for Q3 reflects lower revenue growth than we delivered in the first half of 2019. This is driven by a couple of factors. The first is the comparison, we face as we lap our global business recovery in the second half of last year.

As you May remember, we've got particularly difficult comps in the U S and Japan, our two largest markets 28 and 24%.

In the United States, and 44% and 30% in Japan in Q3 and Q4.

The second is the recent decisions that we've made to deprecate certain legacy AD formats in order to better serve our customers and drive greater focus in revenue product, increasing the stability performance and scale of our ads platform in general and our mobile application download product in particular will take place over multiple quarters with a gradual impact on revenue.

We're confident that focusing on our most important products delivering higher performing better formats for our customers and creating a path to more direct response ads over time will deliver better outcomes for all of our stakeholders for years to come but it does require focus and tough near term decisions with that we're ready to take your questions operator.

At this time if anybody has a question. Please press star one on your telephone keypad.

One on your telephone keypad.

So let me kick off our Q&A roster.

Yeah.

Yeah.

Your first question comes from Doug Anmuth from Jpmorgan. Your line is open.

Thanks for taking the question.

Jack you're coming up on two years of the heavy health work efforts here on the platform can you just talk about how you'd characterize your success so far in improving safety and security and do you think that you've turned the corner on health work from weighing on user growth to now helping actually drive user growth. Thanks.

Yes, Thanks, Doug as we've talked about on this call before we do believe that health is a long term growth vector for us.

And we have been doubling our efforts to make sure that we can address all the issues that we're seeing on the service as I mentioned in my opening remarks, a big focus for us over the past year has been to proactively identify.

Content on Twitter that would violate our rules so that we don't require a report.

As you know.

Lot of our infrastructure in the past was dependent upon reporting of content by the individuals who were receiving.

The abuse or harassment and also folks who are bystanders.

We have made significant progress on that and saw an 18% drop in reports this past quarter, which which is meaningful.

Something we want to continue to build around a lot of this is our focus on building more technology to address the problems.

And I have a lot of confidence that we have a lot of great work ahead of us that will continue to.

That will continue to leverage to help that situation.

I do believe that health is going to be an ongoing.

Initiative for Us I do believe it's going to be our number one priority for quite some time.

There will always be changing dynamics that we need to address but we are getting better and better at recognizing them faster and more than anything else being able to act on them faster I think this also speaks to a broader shift in the organization. We've spent a lot of time looking at agility.

Within our developer organization, we're moving much much faster on the health initiative, but that's also allowing us to move much faster within consumer.

And within our revenue products as well.

So we are finding a good development engine.

And we are better aligning all the teams to make sure that we focus.

Not only on the clear and present initiatives, but we're able to move much faster with much more agility going forward in everything that we take out so our focus our execution.

And how we see results and learn from those results have been.

Really really excellent over the past two years.

Only only expect that to continue and to quicken.

Great. Thank you Jack.

Thank you.

Thanks next question please.

Your next question comes from Colin Sebastian from Baird. Your line is open.

Great. Thanks, a couple for me as well.

I guess first off if you could talk about the expansion of the sales team what you're seeing in terms of.

<unk> and some productivity and then more broadly on the head count increases which areas of product developments will gain the most from that thank you.

Hey, Colin.

As we've talked about over the last couple of quarters, we continue to invest to drive growth across the company's greatest priorities health first.

Compensation as a way to continue to grow the audience, our revenue product and sales and platform and so the head count growth is really thinking about all of those areas. We continue to add people to the team that works with our advertising partners in different parts of the world thinking not just about where they can have near term.

Productivity impact, but where we see long term potential as we continue to drive <unk> growth and density in some of the important markets outside of the United States.

So no changes to our thinking in how we how we grow the team across those priority areas.

Thank you.

Thanks next question please.

Your next question comes from Eric Sheridan from UBS. Your line is open.

Thanks, so much for taking the question Jack maybe two bigger picture questions for you. The 2020 election U S seems like a pretty big opportunity given the Nexus that Twitter has become around political discourse, maybe talk through a little bit of the opportunities, but also some of the challenges and how you have to prepare the platform for such a big opportunity in <unk>.

<unk> thousand 20, and then the NBC announcement around the Olympics seem like a pretty big positive to us in terms of video content.

And tapping into Twitter from real time, how do you see that product announcement and that partnership as a potential harbinger for additional ways in which you can tap into the live and.

And real time conversation nature of Twitter with other partners over the long term. Thanks, so much.

Yes, thanks for the question Eric.

So we do see a lot of opportunity, but also challenges with with elections and.

One thing to keep in mind is Twitter is a global services, we have seen elections all over the world.

In the past two years and have learned a lot from them just in this past year, we saw elections in the European Union, Australia, India, and Indonesia, our number one priority within elections and conversations on the elections conversations around the elections is making sure we're protecting the integrity of the car.

Recession around the election.

This.

Manifests in a few ways first and foremost it's identifying forms of manipulation used to amplify misleading information.

It's increasing transparency around AD purchases and targeting and of course, we continue to challenge suspicious logins and account creation. It's also really important.

Every country that we're in we have significant local partnership with local authorities.

<unk> on the ground to make sure that we're seeing things much faster.

This is all in a category of misinformation and misleading information.

And this is our number one focus as we consider the election.

That said the opportunities are certainly vast we do see obviously a lot of conversation around news and politics around the Democratic.

Debates.

And we believe that Twitter has an important role to carry these conversations and to help people learn.

About what's unfolding within all of our countries. So we want to make sure that we are.

Present, and we're organizing the conversation in a way that people can learn from immediately in terms of the Olympics and live.

We've talked about on these on these calls for some time, we think video is an amazing trend, but an amazing complement to conversation and our work with video and with these live events.

To make sure that we can enrich the conversation to me.

Make sure that more people can reach and participate within these events.

More people can opine on what they're seeing.

And also see the roar of the crowd, but also a recap of everything that happened that they may have missed in the time so.

We're really excited about these events from sports to news to entertainment.

It has been something that we feel has made the conversation on Twitter and around the world much much stronger and much more interesting.

Great. Thank you.

Okay.

Next question please.

Our next question comes from John Blackledge from Cowen Your line is open.

Great. Thanks, a couple questions on the da use.

Second quarter.

<unk> was better than expected if you can just discuss some of the key drivers of the growth.

Color on key markets driving international.

Market strength in the quarter and then Jack you mentioned.

Improved agility.

What's driven the product improvement cadence.

And agility recently versus the past couple of years. Thank you. Thanks, John Thanks, John I'll start and turn it over to Jack So on the <unk> growth. We were pleased that the breadth of our performance as you may have noticed the USDA returned to double digit growth at 10%.

$9 million and international grew 15% when you unpack the international although we didn't break it out by geography, we did see broad.

<unk> based <unk> growth that we feel good about and that leads us to.

We want to continue to focus on the opportunities that we see outside of the United States as well when you step back from the day. You go then you think about what's driving it.

Jack went through some of the specific product things that we've done in his opening comments, but it's important to consider that when we talk about relevance quarter. After quarter. It's an important reminder, that relevance isn't something that you cross off the list and you move on to other things. It's something that you can continue to iterate on and improve around and that the improvements that we make.

To the service one quarter benefit people, who come to the service many quarters later and so we look at this 14% year over year growth, we delivered and we see the cumulative benefit of the last few years of work that we've done to improve the service to drive relevance to make Twitter more conversational to make it easier to find the <unk>.

<unk> and events that people care about most let me turn it to Jack to talk about the agility question.

John I guess there's.

Three big things here one.

It's just focus.

The second is around.

Our technology and the third is around our people. So in terms of focus we've been we know what we are now and we know what sets us apart from our peers and our competitors we know.

Why people use the service why they get value out of it.

And that's allowed us to.

Really.

Prioritize what matters, most and shut down things that don't contribute to that purpose and contribute to that to that focus.

That's been quite clarifying and has allowed us to really organize our teams.

And a much stronger way so that we can move much faster number two is we've just been applying a lot more machine learning and deep learning to nearly every aspect of the service every every problem.

We've gotten a lot better at re factoring some of our older.

Platform and infrastructure.

We've gotten better at hiring and acquiring teams that are focused on bringing a much.

Higher bar of machine learning and deep learning discipline to every problem domain that we face.

And we approach every problem now with with technology first.

And thats been a pretty market shifts within within the company we were fairly mechanical.

Three four years ago.

And most of the things that we did so we're seeing that within the experience we're seeing that within health.

And we're seeing that with our infrastructure as well from the consumer side, all the way to the revenue product side.

And then the third is around people, we have the benefit of having some really amazing people with a lot of heart a lot of care and a lot of strength and resilience. We are focused on doing the right things, but we continue to hire.

Folks, who inspire others to join the company as well.

Just made a major hire within.

Our design team Dantley Davis, who is leading.

Our design efforts, which will give us a lot more clarity on the experiences experiences that we're creating how it feels but also providing that amazing design.

Global thinking to everything that we do not just not just the product but around the company. So these three things together have allowed us to move much much faster in a more focused way that will result.

<unk>.

<unk>.

A greater impact and certainly a whole lot more agility, but we benefit across the board from it.

Thank you.

Thanks next question please.

Next question comes from Mark Mahaney from RBC. Your line is open.

Thanks that <unk> growth is really impressive could you talk about the extent to which that's coming from people who had used Twitter in the past had an unsatisfactory experience, but they've somehow come back either through viral.

Whatever they've heard that the site has improved or whether those are brand new users to Twitter and I guess as part of that could you just comment on your ability because the awareness of Twitter is super high and a lot of people who have used it in the past and have probably retired from the service your ability to actually make the product more conversational more intuitive.

To tap into those users just talk about that.

It's a source of new user growth. Thanks, a lot.

Hey, Mark Thanks for that so when we look at how the composition of the people who are new to that Dia you bucket, we definitely would think about them in two areas is the people who've been on Twitter before.

Who are coming back more frequently than they may have in the past and people who are new to the Twitter as we talked about for some time when we look at that.

The funnel the people who come to Twitter, we've been remarkably consistent at the top of the funnel in terms of having a lot of people come to the service every day, whether they come because of a link because they went to the app on their phone a notification or are they searched for something somewhere else then it brought them to Twitter and the opportunity for us is to help them find what they're looking for faster.

Surface to things that are important to them the topics and events around them that they care about most and as we do a better and better job of that we're able to take the folks who have been coming less frequently and help them come more frequently and help the people who are new to the service find what they're looking for right away. So we definitely think about both.

Buckets as having been areas, where we found some success recently, but also both where there's real opportunity in front of us as well.

Great. Thank you and.

Take the next question from Twitter It comes from the Twitter account of.

Jeri Mcneill.

And he or she asks the new timeline makes lists easy to view and switch between a creating and adding to list is still clunky and non intuitive.

Will there be changes to the list creation feature better leverage the timeline customization soon.

Thank you Jerry this actually.

Speaks to a little bit to Mark's question as well, we have a number of.

Primitives within the App like list that we have been looking pretty deeply at and considering these are very powerful features that a number of people who had been on the service for quite some time.

Or are active today or coming back to the service got a lot of value out of and the interesting thing about list as it hits exactly what we're trying to do with topics and interests people spend a lot of time finding accounts.

And putting them in a list.

Following those lists the simplest thing that we did recently was we made it we made those lists accessible right from the timeline. So if you do create your own list of topics around say crypto currency you did all the work to find all the interesting accounts within the crypto currency space.

And you've created that list in the past, it's been really hard to find that now it's right at the top of the timeline you can switch switch between the home timeline you can go right to that list. You can also go to any list they use subscribe to the.

The next step of that as you allude to is making list creation much easier.

Making it much more accessible to more people and giving more control over that and we're doing all of this work in the spirit of.

Interest and topics and events.

And we think this will be extremely impactful and it's adding a new set of functionality around not just being able to follow accounts, but generally more topics more interest.

We think this is certainly interesting and relevant within the experience, but we also think there's a huge opportunity within onboarding as well a lot of you have probably had an experience where the easiest and best way to get someone on to Twitter is to show them, who you're following and help them find those accounts as well with list.

And with these recent moves that we've made this makes it much much easier to give people kind of a starter pack around any topic or interest that they might have that they can easily follow and get a timeline and a very rich experience almost instantaneously. So this is something that we're we're really.

<unk> I'm really excited about what we can do with lists and topics and events and I think I don't have them.

A massive net positive impact on the service.

Okay. Thanks, Thanks, Jack So next question please operator.

Your next question comes from Lloyd Walmsley from Deutsche Bank. Your line is open.

Thanks.

Two if I can first just you talked about in the shareholder letter. Some AD unit changes can you give us a sense of what's what's getting deprecated and what some of the new AD units are and how how early feedback is and then the second one which may be related can you just give us an update on progress with the new map ads.

And what operationally do you need to do to get these in place and any reason to think that they can't scale pretty quickly given it's a performance product once you get it right.

Hey, Lloyd Thanks for the question. So on the Deprecation first then we'll turn to map you're right they are related.

We often are looking at the portfolio of things that people work on here and thinking about how we can drive focus if we just step back from all the work that we've done and some of the success that we've been able to drive.

Really feel like focus has been.

<unk>.

Behind a lot of that when we're clear about our priorities and when we focus on those even at the expense of other things, we see real benefit from that the product applications. We mentioned are in service of that prioritization in particular on the revenue product team. When we have AD formats that are big enough that they can impact our ability.

To.

Guide.

One direction or another but small enough that we don't think that they can have the same long term benefit as focus on our greatest priorities, Ken we'll make the tough near term decision to communicate to the advertisers who use them.

Shut them down and hopefully move people over to other things when you do that there can be some disruption.

In the near term what an example of that is the carousel product that one we've announced already.

These are again, they're not big enough that it makes sense to break them out, but they do impact the guidance that we provided a little bit relative to what we delivered in the first and second quarters. There are a couple of others as well that we've considered or made decisions around but we're still in the process of communicating.

This is all in service of those two big priorities that we've talked about for the revenue product team. The first one is the work we're doing on our AD server to make sure that it is positioned to allow us to move quickly to try new things to attract great people to the company who want to work on the latest technology and who are positioned to.

Move quickly once they get here. The second one is map, which is the mobile application promotion AD format that has been a really successful format for us in the past, but one where we know we can deliver better where we believe that we can deliver better relevance. We can help advertisers declare their objectives better we can help them move faster and.

And deliver stronger ROI for them, we're still in the middle of that work and as we move forward with it.

There may be a point, where you can see the benefit from it ramp quickly as you described because it's a direct response related product, but we're still at the stage, where we believe that you would see its impact be gradual in nature and so.

We will talk more about it when we get there and that gradual nature starts, but we're not there yet we're still working hard to make it happen.

Great. Thank you.

Thanks next question please.

Your next question comes from Brian Nowak from Morgan Stanley . Your line is open.

Thanks for taking my question I wanted to ask about you mentioned in the letter you're staring with new ways for people to better customize their home timeline sort of follow interest a little better maybe talk to us a little more tangible examples of kind of what you're changing and what are you seeing in the early tests from an engagement or retention.

<unk> perspective thanks.

Yes, so I'll speak to the first part of your question Brian .

We started this work.

Some time ago about three years ago. When we first started ranking the timeline by relevance.

So we moved away from a pure reverse chronological model.

Over the past year, we introduced some controls at the top of the timeline to enable people to.

To quickly shift from reverse chronological to.

Two a ranked timeline.

This was very well received by our customers.

Let us to believe that we could do even more.

The most recent is around putting lists.

Right at the top of the timeline. So now people have an experience where if they've subscribed to a list or created a list. They can switch they can quickly switch between the home timeline and also their list we want to add a lot more controls to this in particular.

And we want to make sure that we are giving people control within.

These timelines around relevance.

As we've talked about for some time in the past potentially even following topics following interests.

Following locations.

Everything that really corresponds to getting people to a much more relevant timeline per topic per event.

Her a enduring interest much much faster.

Believe it will create an experience where people can.

Usually follow communities that they are interested in.

And go very deep and really focus the conversation focus their timeline on that so.

The most important thing for US is this agility aspect.

Can quickly experiment and that we can quickly learn and we can co create with.

The customers that we serve so that we can see what's working what's not working what they love what they don't.

And make some informed decisions based on that so that machinery within the company and that that practice has really really improved over the past year.

And as we've talked about the timeline is where people spend the majority of their time, our focus there our focus on making the experience much more relevant.

Enabling people to additionally, making more topic.

<unk> focused in interest focused.

That has been.

Very very well received and we're excited to continue.

Continue in.

Especially excited about everything that this year will bring along that dimension.

Brian just to go to the second part of your question on our results.

<unk> is just going to be the best way to tell if we are delivering impact for people because if we're giving them a good experience that we're doing all the things that Jack described they're going to come back to Twitter every day, and they're going to come to find out about the topics and events. They care about most and they're going to engage with the service and be a part of the conversation so.

That's why we that's why we will keep talking about D are you on these calls for your benefit.

Worth pointing out, though just as we think about the <unk> growth.

One of the things that we're particularly proud of this quarter's we feel like we can point to causal.

And as we move further down the funnel with our AD formats, we think there's a lot more opportunity for us to help them deliver.

Thank you.

Thanks next question please.

Your next question comes from Mark May from Citi. Your line is open.

Thank you in terms of the live video product just wondering if you could share with us some of the early.

Metrics there in terms of engagement or are there metrics that might point to the kind of <unk>.

Action that Youre seeing and just kind of curious what the division is here longer term are you looking to expand to a point, where influencers and other large brands can regularly host live sessions with kind of an infinite number of participants.

Im curious a little bit of a deeper dive there and then secondly in terms of international revenue do.

You see any drivers that could result in improved growth there in the international side of the business. Thanks.

So a couple of things Mark the first part of your question around live video so.

When we think of live video it can be a couple of different things that could be somebody using the service using live video as a way to participate in or start a conversation you'd mentioned a part of the live video feature that we've recently rolled out which allows up to three more people to drop into a conversation and be part of.

As a way to contain a bunch of controls within it.

And we have a very a really exciting road map with them they said.

This is one of my favorite product reviews of the week is seeing what the team is thinking about and experimenting with them and how we're thinking about rolling rolling this out but we should see these continue to rollout.

We want to continue to build in a lot of agility into our process and that means that we're improving the app. So we can introduce features like this much faster to more people. We can learn from very quickly. This sits on little T. As well. This is a prototype app with a very small beta audience.

This is a amazing testing ground that we can shift rapidly.

And we have the full app to play with instead of just a section within the production App that allows us to test much broader and much deeper changes.

We will always look to expand the number of people who can participate with this but the ultimate goal is to learn much quicker. So that we can get the features that we're testing into production faster.

And a lot of what we're playing with within conversation. We think we have a pretty good experience, we think it organizes conversations and replies.

And a much clearer way and we do believe that elements of it are ready for production.

It's just a matter of doing that work and making sure. We're taking the best parts in all of our learnings and improving it but.

The DMT increased agility, we've built into the production service in the App and the pairing of that with little T allows us to most importantly learn much faster as we as we get feedback from from the people that we're serving and also pairing that with some opinions we have on where the service should go.

Hey, Heath the second part of your question around the AD revenue in the performance this quarter one of the highlights you probably noticed was the 29%.

Revenue growth in the United States, when we look at that and the strong performance outside the United States as well, we feel like our messages of launching new products and services and connecting what's happening continue to really resonate with advertisers Bruce and the revenue product team are designing great ad formats and delivering.

As you can imagine is a little impacted by currency, it's impacted by the tough comps and then if you look at any given country.

The growth rates in any given quarter are impacted by the AD formats that people are embracing the campaigns that people running the topics and events that are bringing people to Twitter.

So that's something back to Japan more than we might have liked in the second quarter. When we look ahead and we think about the work that we're doing on map. When we think about the Olympics being hosted in Japan next year, and we think about all the hard work that we've done there to get closer to the agencies and to the most important advertisers we feel really good about the potential in <unk>.

Overtime, and so we'll work hard both from the data licensing and other line that you mentioned, but even more importantly from the broader ads opportunity.