推特 (TWTR) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Twitter Q1 2016 earnings conference call.

(Operator Instructions)

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

Hi, everyone, and welcome to our Q1 earnings Periscope. We have with us today our CEO, Jack Dorsey; COO, Adam Bain; and CFO, Anthony Noto. We hope you had a chance to look at our shareholder letter which we posted on our Investor Relations website shortly after the market closed.

Like last quarter, we'll begin with just a few prepared remarks, before we open the call directly to your questions. During the Q&A, we'll take questions asked via Periscope and Twitter, in addition to questions from conference call participants. To submit a question via Twitter, please direct it to @TwitterIR using the hashtag, TWTR.

We'd also like to remind everyone that we'll be making forward-looking statements on this call, such as our outlook for Q2 and 2016, and our operational plans and strategies. Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance.

Please also take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ materially. The forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements, except as required by law.

Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in the tables in our shareholder letter. And these non-GAAP measures are not intended to be a substitute for our GAAP results.

And finally, this call in its entirety is being broadcast over Periscope, and being webcast from our Investor Relations website. And an audio replay of this call will also be available via Twitter and on our website in a few hours.

And with that, I would like to turn it over to Jack.

Thanks, Krista. Hi, everyone, and thanks for joining us.

A couple of things before we start with your questions: This is our first quarterly update after laying out our long-term strategy and priorities. And as we shared last quarter, our focus is on live.

Twitter has always been the best place to see what's happening now, whether it's breaking news, entertainment, sports, or everyday topics. Only Twitter lets you connect with people anywhere in the world with live conversation.

Think of President Obama congratulating Elon Musk on the historic SpaceX landing, or the world celebrating the legacy of the legendary artist, Prince. Only Twitter lets you follow these historic moments, join in the conversation, and share it with others.

We made a lot of progress on product innovation this quarter, particularly with live video and our refined timeline, and people love it, with less than 2% opting out We remain focused on improving our service to make it fast, simple, and easy to use.

We also announced a significant deal with the NFL a few weeks ago. As soon as we announced that deal, almost every league in the world contacted us, because they want to provide an even better experience for their fans.

And with that, we'll move on to your questions.

Great, thank you. Sabrina, we're ready to go ahead and take the first question, please.

(Operator Instructions)

Anthony DiClemente, Nomura.

Thanks a lot for taking my questions. One for Anthony and one for Adam. I know you don't give forward guidance on users or the active user trajectory, Anthony, but can you just give us or speak to trends that you're seeing in terms of new users added, resurrected users, and retention? I think last quarter you talked about users from performance-based marketing having higher retention rate, and obviously if you want to give us guidance on users for next quarter I think we'll take it.

And then another one for Adam, in the shareholder letter it talked about brand marketers not increasing spend as quickly in the first quarter. I realize that monetization is still growing, but in terms of the deceleration are dollars shifting back to traditional media platforms, do you think, are they shifting to other major online platforms? I guess in your conversations with brand marketers, how are they looking at the strengths or weaknesses of the Twitter platform versus other major media platforms that brand marketers might pursue?

Thanks, Anthony, I'll take your first question. In terms of MAU growth, the primary drivers of MAU growth in the quarter were both seasonality and marketing initiatives. Of course the continuous improvement in our product underlines the benefit in seasonality that we're seeing. It's just not large enough for us to break it out specifically, but as we talked about in the shareholder letter there are contributions there.

As it relates to the funnel dynamics, we benefited in the quarter from both an improvement in the top of the funnel as well as retention, and again the retention improvements reflect a continuous improvement in the product starting to impact the ability to retain a larger top of the funnel this quarter.

In terms of our outlook for Q2, we're not providing a Q2 MAU outlook. In the past when we have provided an MAU outlook, it's because we felt there were some unusual underlying trends that we needed to point out, and that's not the case today.

Anthony, I'll take your question around the advertising side. On the advertising side overall as we mentioned brand spend didn't grow as quickly as we expected. In the quarter, video was strong but that was partially offset by some softness that we saw in older legacy brand products. So these are promoted products, for example, without video. In terms of the opportunity ahead, we see a clear opportunity ahead to increase our share of the brand advertising market especially around video. Some of these new video opportunities will, we believe, grow budgets that we have access to.

We also hear from marketers that there's nothing in the world like Twitter in terms of, as a marketing platform. Twitter is that live connection to culture for marketers, and that's both unique and special in the brand universe. Live is what's most valuable in the ad business. So to make this even more powerful we're working on some video tools. These are things like region frequency planning, demographic targeting and verification, which we'll roll out this coming fall to coincide with our NFL deal and our live-streaming strategy.

Thank you.

Doug Anmuth, JPMorgan

Hi, thanks for taking the question. This is Cory Carpenter for Doug Anmuth. Maybe just a quick question on the NFL deal which you guys discussed in the letter. Could you maybe just talk through how you thought about it from a user acquisition or engagement perspective, and maybe also how you're thinking about it in terms of monetization? Thank you.

Sure and thank you for the question. As Jack mentioned, Twitter has always been known for the place to go to see what's happening in the world right now. And we been real-time. The reason we been real-time is because our Tweets publicly available for everyone to see, and they're broadly distributed, and live is the best manifestation of real-time. We already have live connections, live conversations, and live commentary on the platform, and it's an opportunity for us to add live premium content to those conversations and that commentary.

And so yes, the NFL deal is important and I'll talk about that in more detail, but we're focused on live premium content in all the sports, news, and politics, as well as entertainment, to bring together for our users what they're already talking about, what they already care about.

As it relates to the NFL, we know that on Thursday nights during the three hour telecast of Thursday Night Football, we have millions of users looking at Tweets about that game. And they're creating tens of millions of impressions that we know are very valuable to them and very valuable to our partners, both the NFL and of course our advertisers.

And so being able to bring the live-streaming game into the product with that live commentary, those live conversations, is a complete solution. And it's a complete solution for those tens of millions that are already on our platform and care about the NFL, and the tens of millions of NFL fans that are not on the platform.

And so we see it as a product that will the same for logged in, logged out, and syndicated users. It's the same video, the same ads, the same analytics. And we can deliver in an instant a very transparent way to tell people to come to Twitter and deliver on that instantly.

We've talked about the importance of us clearly communicating our value, and delivering on it instantly. Live sports, live premium content is a way to communicate something that's very familiar to people, something we know they want based on their interests on Twitter, and to deliver that in an instant, not just with that live video but all the great conversation and Tweets that are attached to it, and expose those that haven't used Twitter to that great content, and those that are, a complete solution. So we're really excited about the opportunity to use it as a complete solution.

On the advertising side, we control some of the inventory in the pregame, in the game, and also post-game. This follows along a multi-year three-year history that we've had with the NFL bringing premium content onto the platform, and also bringing it out to Madison Avenue.

The demand for this program has been incredibly strong for marketers. Only had it in market for about a week, we've already signed up one major sponsorship to the package. It's important to note that sponsorship actually was funded from video budgets instead of social media budget. So it's a good example of how the live-streaming strategy that we have overall is aiding our ability to go after these video budgets that we talked about coming this fall.

And I want to point out that this watching with Twitter, watching a live event has been something we've seen for nine years now. It's pretty phenomenal and this is really about making sure that we make it even easier for people to see these games, and to see these events, and actually Tweet about them.

But more importantly they get to see all the content on Twitter right away, so a very easy way to get in, so they can see all the individual produced content, including the premium content as well.

Thank you.

Ross Sandler, Deutsche Bank.

Thanks, Krista. I just have one for Jack and one follow-up for Adam. Jack, there was a number of comments in the letter about increasing engagement, so can you just parse that out a little bit for us? What kind of increases or impacts are you seeing from the new algorithmic timeline, and given that you made a bunch of different changes to the core timeline product, what's the best way for us to measure the increases in engagement? Is DAU over MAU still the most important metric, and if so how does that look compared to prior periods?

And the question for Adam, just to follow up from the previous questions, how does the overall ad market look heading into 2Q? Do you expect the work that you guys have been doing around improving measurement and targeting, particularly on the DR side, to start to help the ad revenue growth, and if so, when should that happen this year? Thanks.

Thanks, Ross. The refined timeline we're really proud of, we're really proud of what it's been doing for the service, and what it's been doing for people using Twitter.

As you know a lot of our folks spend the majority of their time in the timeline, and the more technology we apply to this, while at the same time giving people control to tailor their experience, the better effects we see.

We've seen increases in Tweets and replies and Retweets, and also likes, obviously. So we want to continue to make sure that we're refining that timeline, and making it better and better and better, so when people come back to Twitter they see what is meaningful. And a quick pull to refresh and they go right back recency.

I'll let Anthony take the second part of your question.

Sure. Ross, as it relates to engagement we have a number of factors that we look at as it relates to engagement. The one that is probably the most important is daily active users, and it's one that we continue to focus on, as well as a number of other factors including searches and direct messages. So we'll continue to look at that metric as well as the others that we have talked about in the past.

And Ross, to answer your question on the overall ad market. If we look across the board, we grew, we had strong growth internationally, 46% on international growth ex-FX, and 39% growth here domestically.

We look, internationally, we saw across Europe, some marketers who held back spend in the first half, holding it back for the Olympics and things like the Champions League. There were some other areas like Brazil and some other major categories, tech, QSR, and retail as good examples of big categories that were a little bit softer than we expected. The jury's out a bit since the whole category hasn't reported yet to see how that's going to shape up across the board.

To your point around Q2, we're going to continue to move our marketers from these legacy Promoted Tweets into Promoted Video. Promoted Video performs incredibly well. We just recently have gotten back a return on ad spend study for video during this past fall season. We saw a $6 return on ad spend for a major beverage manufacturer, so for every dollar that they put in Twitter, it returned $6 back at the register. They told us it was best in category, and so with that type of ROI we're going to continue to move people through video.

In terms of targeting creative and measurement on the direct response side of the house, we've got a lot under way there. One point that I'll make is around our dynamic product ads. When we last talked at earnings, DPAs had just been into an early beta. We've now expanded the beta. At the time we were seeing a 2X lift in click through rate. We're now seeing a sustained rate of 2X lift in click through rate, and we're also seeing twice the conversion rate through the funnel.

So those strong results mean that it's ready to open up even more. DPAs take a little bit of time for a marketer to implement, so in Q2 we're going to start opening it up through the Ads API, so partners can help onboard them as well. So we should be ready for the fall back-to-school season and the holiday in Q4 season.

The next question from Twitter comes from the Twitter account of Arvind Bhatia, and he asks, is there a way to quantify how much Twitter's advertising revenue will benefit from the election this year?

So were not going to get into the quantification of the elections. I think as we think about whether it's the Olympics or the elections or things like the [Euro league] championships, there's a huge opportunity for consumers on Twitter to see really relevant content now, and certainly marketers and content partners to have access to new products and features that they didn't have the last time each one of these events happened.

During these events is really when Twitter shines for marketers. These live audiences and the connection that marketers can have to them are rare in the online ad space, and so we stand out from the rest of the market around these events.

We think about the elections, direct response part of election cycles which is around fundraising, marketers can now bring tailored audiences to bear.

In the Olympics we're going to see a lot more video and video advertising being used, so we think there's going to be great opportunities to showcase how far we've come since the last time around.

Heath Terry, Goldman Sachs.

You mentioned the increase in ad load during the quarter. I was wondering if you could give us a sense, how much of the slowdown in growth that you're projecting for Q2 is from a more limited ability to increase ad load, and as we start to think more and more about the network opportunity off of Twitter, how do you think about the opportunity there from an ad load perspective?

Thanks, Heath. In terms of ad load, ad load in Q1 was down sequentially from the fourth quarter, so no inventory issue in Q1. As we look through the rest of 2016 and beyond, the areas that have the most incremental growth in monetization would include international home timeline, and international non-home timeline, US non-home timelines, logged out, and syndication.

We also have a significant opportunity to increase the yield of the current inventory that we're selling, improve its monetization, and that's from a number of factors, continue to scale our advertisers. Our goal long-term is to have millions of advertisers like our competitive peers. That's a big driver of continued improvement of the yield of our current inventory that we're selling, in addition to the fact that we're focused on targeting creative and measurement that will also drive yield. So those are the biggest opportunities as we look forward.

Heath, and on the top side what we're seeing from a strategy standpoint is that direct response advertisers are really responding well to the new inventory that exists across Twitter audience platform. We're seeing actually advertisers that are testing, DR advertisers that are testing into those new areas of inventory actually grow budget with us, so we're off to a good start, that's a good sign there.

Great, thank you.

Eric Sheridan, UBS.

On the EBITDA margin obviously you showed a tremendous amount of leverage in the model in Q1, on the EBITDA line. Wanted to understand better what drove that leverage in Q1. And then also on the flip side on stock-based compensation, that continues to run a little bit higher than what we thought in some of the future periods. Maybe you can give investors some sense about stock-based compensation might traject longer-term, thanks.

Sure. We had a very strong quarter on the profitability front. EBITDA margin on a gross GAAP revenue of 30%, even higher on a net revenue basis excluding TAC. The quarter really reinforces our belief of the opportunity to drive long-term margins of 40% to 45% on an EBITDA basis, relative to net revenue.

In fact our R&D expense and our G&A expense as a percent of revenue are already where we would like them to be in the long-term to support that EBITDA margin as a percent of net revenue of 40% to 45%.

The efficiencies we have in the quarter are directly related to employee expenses, infrastructure expenses, and software development.

As we think about the longer-term, we are going to balance improvements in profitability with the growth opportunities we see in front of us. We want to make sure we're capturing those growth opportunities, and investing in them appropriately to maximize shareholder value in the long-term, but we want to do that in a disciplined way. So continued improvement in profitability, but not sacrificing those growth opportunities.

Q1 happened to be a quarter which we did less investment compared to Q2. And ultimately our margins for the full-year reflect the level of investment that we plan on making, with some lumpiness by quarter depending on the magnitude of the investment

As relates to stock-based compensation, I'd make a couple of points. It's our goal to get our stock-based compensation as a percent of revenue down to the high single digits as a percentage of revenue comparable to our competitive peers in the technology sector and to internet in particular.

We've continued to manage our net and gross dilution on an annual basis to be equivalent to where they are, and ultimately the scale on revenue against the largely fixed cost or declining cost will allow us to get there over the next couple of years.

Great, thanks, and we'll take the next question from Periscope. The question is, why not monetize Periscope and Vine?

I'll take that one. We actually are monetizing Periscope and Vine by bringing that creative canvas into Twitter and allowing marketers to bring that canvas into Twitter and do targeting campaigns and measurement through the tools that we have available on the platform. We plan to expand the Promoted Video with Periscope option for marketers this quarter by bringing in the Android platform as well. Up until now it's just been available on iPhone.

We seen incredible creativity as well recently, with marketers taking advantage of the Periscope option in Twitter. Two great examples of this were Doritos that went live during the Super Bowl and promoted the Periscope on Twitter, and also Kohl's the department store who went live during the Oscars and brought a behind-the-scenes red carpet live on Twitter through the Promoted Tweets with Periscope.

Brian Weiser, Pivotal Research.

Thanks for taken the question. First I just wanted to dive a little bit deeper into the brand spend in the quarter. I was wondering to what degree do you think that negativity out there in terms of sentiment to the press or otherwise might have impacted how brands are thinking about it, and part of that is to the extent that potentially this rebounds, that might contribute to some upswing.

A separate question around the dynamic product ads, is what you're indicating that, you're suggesting there could be acceleration in the second half from direct response advertisers, and do you think that would generally benefit owned and operated, or would it impact networking inventory more so?

Let me take the first one. I don't believe that that sentiment affected the brand spend, and we see a couple different proof points on that.

Probably the biggest proof point is that in Q1 we go through and do strategic upfront deals. These are our relationships similar to TV upfront relationships with our largest advertisers and also agency holding companies. So in Q1 we re-signed three of our global agency holding company deals. These are centered around video and these are all up collectively 40% year-on-year.

On the individual upfronts that we do with large customers we also are up over 40% year-on-year with them as well, which indicates some back half opportunity to the year, especially around video.

To your point around DPA, the DPA technology is using the TellApart technology, so this is the first real example we have of bringing TellApart's technology onto Twitter's owned and operated platform. It's exposing us to new budgets, these remarketing budgets that we've never had before.

The signs are good in terms of the lift, both the click through rates and the conversions, which show that it's performing for marketers all the way through the funnel.

What we need to do next now is bring the remarketing budgets on to the platform at scale. In order to do that we're lighting up these API partners and other third parties to help bring that quicker to the platform.

Will it work? It should work for the Twitter audience platform in a big way, but it also will work for Twitter owned and operated, both logged in and also logged out, since remarketing budgets can take advantage of the targeting that's available for logged out users.

Great, thank you very much.

Brian Nowak, Morgan Stanley.

-- questions, I have two. A lot of focus on live events and live audiences, in the first quarter we had the Super Bowl. Could you just talk about the Twitter live audience around the Super Bowl, what you saw in 2016 versus 2015, how is it changed year-on-year, bigger, smaller, et cetera.

And the second thing in the investor note it sounds like you're pretty focused on specific plans to go after new online video ad budgets. Can you just talk to some of the changes you see being made to the video ad product to go after more dollars? Thanks.

Sure. In terms of the Super Bowl in particular we haven't called out the specific performance of that. Overall the NFL for the full season performed very strongly at a Tweet-impression basis, in addition to the live audience that was watching Tweets while also the telecast window was open.

And so those are two things that we analyze and of the two reasons why we were so aggressive in trying to create the relationship with the National Football League in our fourth year. That's really extending what we'd already had for three years on Amplify. And so the NFL season was a real success on Tweet impressions and that live audience measurement.

Let me turn it over to Adam on the online budgets.

Yes, so on the online budgets, these are a set of budgets that we don't have exposure to today because they require a certain set of features that we're working on right now. These are features like demographic targeting and validation, GRP and TRP targeting and reporting, so it's a function of putting these features in place.

We believe that we can tap into incremental video budgets when we put those features in place. The features are actually in development right now and are going to be timed to launch with our NFL deal and our live-streaming strategy for this fall.

And as I mentioned we're already seeing good response from the market by the fact that advertisers are funding for example the NFL deal with the video side of the house instead of where we typically pull money from on the online ad budget.

Thanks and the next question we take will be from Periscope. The question is, will you incorporate Periscopes during the NFL games?

Thank you for the question. The great thing about Twitter and the three brands we have is they can all work together as it relates to video, and part of the relationship with the National Football League does include Periscope content shoulder programming pre-game and behind-the-scenes, and that was part of the deal that we structured with them, and it's part of the other deal that we're working on with other live sports, live entertainment, and live news and politics opportunities.

So we're really excited about leveraging all three elements of it and it's one of the unique things about Twitter that we think can position us to capture our fair share of these opportunities.

Mark Mahaney, RBC Capital Markets.

Hello, this is Andrew on for Mark. Just a quick question, with the addition of the board seats and Leslie Berland coming on, wondering what other holes you're looking to fill on your team? And with regard to Leslie Berland, if you can talk about your changed marketing strategy if at all, or any update on the marketing strategy? Thank you.

Yes, I'll take the first part, thank you, Andrew. We're continuing to look for new board members and you'll see more additions this year. We're really proud of the additions of Hugh and Martha to our board; gives us a lot of guidance and accountability to what we need to do as a service. My focus is a lot on recruiting this year and specifically into engineering and into products, so we're looking for a whole lot more leadership there.

As then it relates to marketing strategy, about a year ago we talked about the need and opportunity for Twitter to clearly communicate our value and deliver in an instant, and we talked about that for the first time. We talked about the importance of product, content, and marketing all working together synchronously to maximize the impact to be able to do that.

Leslie has come in and joined the team and has already had an impact. She's integrated both our advertising cross functional groups, marketing cross functional groups, so those focused on advertisers and those focused on consumers into one cohesive cross function.

And they're developing first principles, they're developing an integrative marketing plan, but ultimately its ties back to that overall strategy of combining product, content, and marketing to deliver integrated experience for our users, both logged in, logged out, and syndicated, so that we can clearly communicate that value and deliver in an instant. So we're really excited about having her on the team and she's already had an impact.

Thank you.

James Cakmak, Monness Crespi and Hardt.

Hi, thanks. Adam, just wanted to talk about the Google relationship. I understand DCM is going in to alpha test here in the coming weeks. Can you talk about what we should expect and how accretive this relationship can actually be, as we look into the second half of this year?

And then I guess, Jack or Anthony, on the users, this is obviously something that gets a lot of scrutiny but you had the DAUs, the MAUs, but at the same time you talked about the 800 million on and off platform. Is users even the right way to think about it? Just how do you guys think about it internally, and is this a metric that we should continue to want to see? Thanks.

Hi James, I'll take your first one. So on the DoubleClick side as you recall there's two parts of the DoubleClick deal. DCM as you mentioned which is around measurement, and DBM which is around ad buying.

So let me start with the DCM piece, measurement. In the quarter we expanded the beta over a dozen advertisers and we've run hundreds of campaigns now through DCM. We have seen two things. One, when measuring desktop impressions to desktop conversions, the data looks accurate through DCM and the results for Twitter for these campaigns looks strong. So that's good news.

When on the other edge, on other side of the house, when you look at mobile impressions that are measured through DCM, that are measuring desktop conversions, so this cross device measurement, what we saw through the measurement period is that something that the industry overall needs to address, which is that this type of cross device measurement overall needs work from an industry standpoint, and it's something that we're working with Google together on.

Its part of the reason why we did the DoubleClick deal in the first place is to help solve some of this cross device measurement for the overall industry. This hits us particularly in an acute way because 90% of our impressions, our ad impressions, are on mobile. So cross device for us is a really important part.

On the DBM side, Google engineers and Twitter engineers are working on the buying piece for integration. We believe it'll be in beta in Q3.

As it relates to your question on users, we like to refer to it as the world's best connected audience. We're focused on driving repeat usage of that connected audience, and I don't want confuse anyone, when we say connected we mean connected to each other, not just connected to a digital platform.

And the value of having that connected audience allows us to be the place to find out what's happening in the world right now, because conversations are live, commentary is live, and it travels around instantly because there are syndicated partners and both our logged out and logged in experiences.

So we're still absolutely focused on total audience, but we want to emphasize the point that we want it to be the best connected audience, which really reflects our point of difference to all the those audiences.

Great, thank you. And the next question we'll take from Twitter comes from the Twitter account of Echo To All, and he or she asks, can you talk about the progress that you're making on developer relations?

Sure. So we recently announced with Fabric that we've crossed over an important milestone, which is Fabric is now touching over 2 billion devices, which is a really important milestone and it shows that Fabric is indispensable for developers across the board.

The other piece of our developer relations is moving Fabric customers also through monetization to the degree that they're looking for help. Up from monetization we saw strong growth in the quarter from MoPub. The amount that we paid to publishers grew 80% year-on-year from MoPub so more ahead I think there.

Dan Salmon, BMO.

Hey guys, good afternoon. A couple of initiatives you mentioned were especially I think, Adam, to help the video business, we're expanding demographic and verification. Might that be something that merely piggybacks on your relationships with Nielsen and Moat or are there new things to be added there?

And then maybe just one follow-up on the renewal of the holding company upfront relationships. Just interested to hear how much of the uptick in spend from them and other large brand advertisers through that process was centered around football and maybe if there's a way to help us gauge maybe what a same-store sales type of number might be for that?

Sure, so on the first one, Dan, on the demographic targeting and also verification of audiences, it is going to be an expansion of our Nielsen and Moat relationship so that we can bring some of the things that video advertisers are looking to measure onto Twitter that hasn't been available before en masse, and that's one of the things we're teed up on for Q3 as we open up our video platform in a major way to also coincide with our NFL deal.

In terms of the renewal of the holding company upfronts we did those before we announced the NFL deal and as I mentioned they're up 40% year-on-year which indicates some back half opportunity. Those upfronts are centered however around video and so the work that we've done with marketers over the last couple of quarters has shown a great response and so I think the agencies are looking at that and having enough confidence to invest in Twitter going forward especially around video.

Okay thanks, Adam.

Peter Stabler, Wells Fargo.

Thanks for taking the question. Wanted to go to the guidance. Could you help me reconcile a couple of things here? So we're hearing pretty strong commentary regarding ROI, new advertising products, measurement, et cetera, yet the sequential guide is a bit perplexing to us, as even mature media companies growing 3% to 5% a year can put up sequential gains in Q2. So is there a suggestion here that current advertisers are pulling back spending as you add new advertisers, or if you could just provide a little more color here, that'd be helpful. Thanks so much.

Sure. In terms of the guidance, it reflects a couple of factors. First the results in Q1 were at the low end of our expected range. The underperformance relative to the high-end of the expected range or even the mid-point reflected a weak March, and that's the month of the quarter that underperformed.

Obviously we've gotten through April and have a sense for where April is, and the next two months are really critical to achieving the full quarter outlook that we provided, or exceeding it. And so we're providing you the near-term update that we have. I think as it relates to advertiser health and the state of demand for the platform, Adam can talk to this in more detail.

But I would just tell you the same thing we talked about last quarter. We have a number of different channels, a number of different geographies, and our largest channel and our largest geography is now about driving share of wallet, and that's our direct sales organization in the US. And so the penetration growth of those advertisers has largely run its course, and we're focused on driving greater share of wallet.

And so some of the slowdown that you see is a reflection of the fact that we're moving from two dimensions of growth for that largest group, largest dollar spend of advertisers, to one dimension of growth.

And Peter I would just add on top of what Anthony just mentioned, in our largest most mature brand channels we actually saw growth in Q1 on a year-on-year basis and we expect that to continue.

Essentially what we expect in Q2 however is that more of these advertisers will trade up from these legacy brand Promoted Tweets into Promoted Video products. Again we think this is a great thing for the platform since video consumes less inventory. It's a great thing for those marketers, they see great ROI when they use video versus traditional Promoted Tweet products, and it's also better for consumers. Consumers report enjoying the video ad experience even to a greater degree than what we see in traditional Promoted Tweets.

Thanks so much.

Thanks. And the next question we'll take is from Twitter. It comes from the Twitter account of Neil Cameron and he asks, does artificial intelligence have a major part to play in your vision for customer service on Twitter?

That's a great question. We're really excited about machine learning and deep learning and all the advances in technology to make the experience better. And it's best when they're applied in a very, very thoughtful way. Twitter has always been phenomenal for the past nine years around customer support.

We've had people come onto the platform to talk about their service, to talk about a brand, to talk about a product they just bought, and the brands actually have a conversation with them. And just a few months ago we released an update to that experience where any brand, any company can take a customer service Tweet private and actually handle the situation with the customer privately in direct messaging, and also give them feedback on the experience so a company can know how well it's doing.

We think that's a great way to start, but we're always looking for new technologies to apply to make that easier for companies to address all of the Tweets and to address all the customers that they see on the platform on a daily basis.

Youssef Squali, Cantor Fitzgerald.

Thank you very much. Two questions please. First starting with Adam, given the focus on video, on Promoted Video, can you just help us, one, understand how you actually price video on the platform, and maybe the differential, if there is one, in pricing between Promoted Video and the Promoted Tweets considering the migration you just spoke about.

And then Anthony, I think on the MAU issue, you talked about the major drivers being seasonality in market initiatives. Can you help us just parse out a little bit what these marketing initiatives that had an impact on the quarter were, and then when you say no unusual trends you've seen in Q2 which is the reason you're not necessarily guiding to MAU. Are we to understand by that that we're back to normal seasonality for that metric? Thank you.

Yes, great, I'll take the first one. So in terms of how we price our video products, they're priced on a cost per video view basis versus these older legacy brand Promoted Tweets are priced on a cost per engagement.

We've seen video be a more effective ad unit for marketers, especially when measuring either the mind or the wallet. You know we've seen video now is a doubling of ad recall versus traditional Promoted Tweets. Marketers that moved into video also saw almost a 30% lift in message association or ad association versus traditional Promoted Tweets. And then lastly an 18% lift in awareness. So ultimately it's helping drive all aspects of a marketer's campaign and objectives, and video is just performing much better.

Youssef, on your question as it relates to marketing initiatives, a couple of factors. The market initiatives that impacted MAU growth are really about digital marketing and it falls into three buckets, performance based marketing, digital video ads, as well as direct marketing.

Starting in August of 2014 we started to build an internal team that could do digital and performance based marketing at scale. We've slowly built the expertise, the data, and the learning to be able to do that at a really effective rate relative to lifetime value. And so that's what we refer to when we say marketing initiatives.

As relates to MAU guidance does not much other color for me to provide you other than in the past quarters there's been some type of underlying trend that was unusual that we needed to point out and we're just saying there's not an unusual underlying trend that was necessary for us to point out for this quarter.

All right. Thank you very much.

Brian Pitz, Jefferies.

Thanks for the question. Earlier this month two new board members were appointed. I think Jack also hinted that there are more additions to come soon. Any color on what other skill sets you're looking for to complete the team, or any insights on what you're looking for? Thanks.

Thanks for the question, Brian. We're continuing to look for public company experience, for global international policy experience, media experience, more the voice of the person on the platform that we find, so that we can continue to build the right product and get the right guidance and perspective from the board, and we're continuing to look for more diversity on our board as well.

Great, thanks.

Thanks, and the next question we'll take is from Twitter. It comes from the Twitter account of Neil Doshi and he asks, can you discuss the SMB opportunity? How is traction and what are some of the challenges?

Sure. On the SMB side we were up on a year-on-year basis overall in active advertisers, and it was driven by our SMB initiatives.

SMB for us is an exciting opportunity because we've identified close to 9 million businesses who have set up shop on Twitter and are using it organically. Our goal is to move those 9 million businesses through the funnel to become active advertisers on the platform.

As we think about the road ahead in SMB, we see the SMB effort mirroring our efforts in direct response. As we've seen so far a lot of the spend from our SMB customers are into things like our website card objective, so our DR objective, so as we make improvements to targeting measurement and also exposing those DR advertisers to Twitter's total audience we think the SMB business will grow right along with it.

Ken Sena, Evercore.

Thank you. You showed a nice EBITDA leverage in the quarter but I notice that overall R&D spend is down about 8% year-on-year. So just given the size of the opportunities that you cite in the letter and the investments that are made by competitors, do you feel you're investing enough?

And then we may have missed it but we didn't see an off network revenue or TAC disclosure, Anthony, if you could provide that as well, that'd be great, thanks.

Sure, I'll take the second question first. Our TAC was up 57% and that will be provided in the detailed disclosures that are available on our IR website.

As it relates to R&D expense we went through a restructuring last year to rightsize the organization so we could focus on delivering the product roadmap that the team has built. We feel like we have the right organization behind that. We're always looking for great talent and retaining great talent and we'll continue to focus on that.

Interestingly enough despite the change in R&D expense, the number of software projects that are being worked on in the first quarter of this year that were started, doubled relative to what they were in the fourth quarter. And in the third quarter we had very few because we were in the transition time period.

So we have a very sizable engineering product and design team. Their work is focused on our product roadmap. It's a great alignment and that's best reflected in the fact we had such an increase in software development projects in Q1.

Great. Thank you.

John Blackledge, Cowen.

Great, thanks. Two questions. For the DoubleClick partnerships, will either the DCM or DBM pieces be out of beta in 2016, or are we looking at a 2017 event at this point?

And then the second question would be, have you said what percent of ad revenue is traditional Promoted Tweets and what was the rate of change for that ad revenue on a year-over-year basis in 1Q? Thank you.

Yes, so on the DoubleClick side DCM is in beta right now as I mentioned. We've expanded it beyond a dozen clients and a hundred campaigns. We're going to continue to expand the beta out, but we're going to watch the cross device measurement piece very carefully as I mentioned.

For us what we want to make sure when a marketer, especially direct response marketer, runs with us through DCM is that they fully understand that their mobile impressions they're running on Twitter of which 90% usually of their impressions are on mobile, will map to the conversions, and they're able to do the math correctly to get to the conversion number.

On the DBM side, engineering is happening right now to get the DBM pipes in place, so we anticipate a beta of that in Q3 and then as marketers see good ROI, we'll open it up from there.

As it relates to the legacy Promoted Tweet, both revenue in terms of year-over-year growth rate, what I'd say it's still a very viable format for advertising partners. It's just becoming, their spending is becoming more diversified. We're seeing it move away from that to these higher performing autoplay video ads which are equally valuable. And so there's a little bit of a mix shift.

But that overall pie is under pressure and it's still a sizable piece of our revenue and to have this point we're excited about the product roadmap we have on the revenue product side, we hope to see that delivered over the course of the year. But that one legacy promoted pie is under pressure.

Thank you.

Thanks. The next question we'll take is from Twitter. It comes from the account of Rich Greenfield and he asks, your strategy and focus is really centered on live. How does Facebook's desire to own life impact Twitter?

Thanks, Rich. We've been doing live for 10 years, and we believe we have a leadership potential. We have a leadership position in it, but it's not just about showing a live event. It's also about hosting a conversation around a live event.

Twitter has always been the best place to see what's happening immediately, to see what's happening instantly, and to bring people together around a particular shared experience. And as we talked about last time, we think the easiest way to get what Twitter is, is really to show a live event.

Show people the great accounts who are providing insight that you can't find anywhere else, you can't find in your address book, but you actually meet on Twitter through that experience. To connect them through a follow, and also to encourage them in a conversation.

And that is exactly what we're focused on making sure that we continue to do, because we are public and because we are distributed and because we are simple, we are the fastest way to see that event, but it also can go everywhere. So it can reach that 800 million audience that we continue to grow and continue to focus on.

And then we're working on making sure that we have the best experience out there, and using technology appropriately to increase that experience and the enjoyment of the experience.

Periscope is a great example of this, where we think we do have a significant leadership position in live-streaming video, and we want to make sure it's the best, not only for broadcasters but for their fans and the fan base that watch those Periscopes.

Mark May, Citigroup.

Thanks. I just had one quick question regarding your comments in the letter that you saw softness during the quarter from some of the large brand advertisers. Would you say that that is kind of a reflection of what's happening at the macro level or it's more company specific, for instance related to the Promoted Tweets transition that you have referenced? Thanks.

Yes, I think for us it really is around the transition from traditional legacy brand Promoted Tweets into Promoted Video. Essentially what we see the advertisers doing is testing into these higher performing units. They haven't grown the spend yet.

We believe that new budget will be added when some of the other features that we have in place, I talked about, like the GRP buying or some of the demographic targeting and verification. In terms of the economy, I talked a little bit about it --

-- what I'd add to that is obviously we want to see all of our peers report and see also where the results are. When we look at our top 10 vertical categories, QSR, quick serve restaurants as well as retail were two categories that performed decidedly lower than the rest of the overall business which are macro driven categories. So to the extent it impacted everyone, we'll have to wait and see, but that's the only evidence that we have in our results.

Thanks, Adam, thanks, Anthony.

Ron Josey, JMP Securities.

Great, thanks for taking the question. I think you mentioned, Jack, earlier that post the NFL announcement other leagues and live events reached out to you all. Just wondering, can you talk about how Twitter is viewing sponsored content versus promoting the content that users are generating via Moments and other tools? Thank you.

Sure. Why don't I hop in there, I'm not exactly sure what you mean by sponsored content. We obviously have an ad model that monetizes incredibly well. It'll work seamlessly with the live sports, live politics and news, as well as our live entertainment product, both in the format that we already have, as well as autoplay video.

And so the opportunity to create economic value for our partners really falls into a few buckets. First, we can help them reach a younger audience that's hard to reach. A large percentage of our users are the millennial demographic. We can reach a global audience, and we can reach a mobile audience and really extend the reach. We can also help drive tune into those that do have linear television, and are away from home, or not aware of the programming being on. And of course we can also help them generate more revenue, both directly and indirectly.

And that value proposition, in addition to the things Jack talked about in terms of the interest [graph] and knowing who is actually interested in that contest, specifically because they're following those types of accounts, and looking at that specific type of Tweet, is really powerful for us to deliver them a complete solution.

Ron, one other thing I'd mention is in terms of overall sponsored video content, we had another successful quarter of Amplify. We now are over 300 Amplify video partners so this is premium video content that partners are bringing on the platform, sometimes exclusively on to Twitter. And it's available now in 25 countries so truly a global offering. Overall we ran hundreds of campaigns in the quarter and we saw great campaigns around March Madness, the Grammys, and Super Bowl.

As we think about the year ahead, certainly there's a bunch of interesting events coming up, but there's also a bunch of always-on opportunity for Amplify partners to speak directly to their audiences and then also to create a win-win with them around monetization.

Thanks.

Okay, we'll take the next two questions together. They're actually one from Periscope, one from Twitter, from the account [TMC Mill 81] but they're very related, so question from Periscope is, are you guys planning any acquisitions a la Periscope? And the question from Twitter is around plans to use the $3.5 billion in cash.

Sure, they are definitely related. The first point I'd make is that acquisitions have been critical in creating value for the Internet sector, consumer internet sector, over the last two decades. Many of our competitive peers have bought assets at the very early stages that have resulted in billions of dollars of value, and Twitter has been the same.

The acquisition of Vine, the acquisition of Periscope, of Fabric, are foundational acquisitions that are allowing us to create value for shareholders both now and into the future. And so the fact that we have the amount of cash in our balance sheet over $3.5 billion leaves us with the strategic optionality to look for those assets that are game changing in the way Periscope is, in the way Fabric is, as well as some of our other acquisitions.

And we're focused not just on consumer capture devices but also focusing on other opportunities that have scaled audience to leverage our great monetization vehicle, and we're also focused on ad technology to continue to build out our ad tech stack. At the end of the day our goal is to be a one-stop shop for advertising and having both owned and operated inventory, third party inventory, and ad tech stack that can serve both of those constituencies is really critical.

Aaron Kessler, Raymond James.

Yes, thanks guys, a couple questions. First can you give us an update on the logged out user monetization, I believe that was in beta last quarter, is that still in beta, what's the performance there, maybe timing taking that out of beta?

And just if you can provide an update on the UI changes in terms of fixing the broken parts you referred to last quarter specifically [the at name syntax and at reply] as well. Thank you.

Hey Aaron, I'll take the first part which is around the logged out monetization update. We continue to expand the beta across Q1. We are encouraged by the performance. When you look at cost per click rates, for example one of the DR objectives that we have, the CPCs are nearly identical for logged in and logged out from a sustained basis across the quarter, which is a good indication from advertisers that they're seeing good value from logged out experiences.

In order to make that opportunity or realize that opportunity we realize that we need to invest more to increase the amount of logged out impressions and overall scale of the offering.

And on the broken windows and the user experience in particular we're looking a lot at conversations, conversations is a huge part of the platform and that's where a lot of the confusing aspects of Twitter are that we know has been inhibiting more usage, and you should expect to see a lot more updates to the conversation modules over this year, and we're really excited to push them up because they clarify a whole lot, and we're making conversation on the platform a lot easier, a lot more expressive as well.

We focused a lot of our energy recently on the onboarding experience, and we've seen some pretty meaningful gains here. We saw over 48% increase in follows and 56% increase in mutual follows. Mutual follows are really, really important to retention because you're getting that constant feedback and you can have conversation on the platform around it. So what we're doing on onboarding into the flow is working and we're going to continue to strengthen that.

Great, thank you.

James Lee, CLSA.

Great, thanks for taking my question. This question is for Adam specifically, with video ads ramping I assume age and gender targeting would become more important. I was wondering how do you address that challenge when you're login data is a little bit more implicit, and give us just how accurate you are in terms of predicting growth factors, and also on video advertising, Adam, how much of your TV or video campaign right now is companion to TV versus standalone on your platform. Thanks.

So on the first one in terms of video, to do age and gender we do ask Twitter users now to input their birthday. There's a special feature on the platform where they get birthday balloons. That data has been useful in terms of targeting. Gender we actually are highly predictive on a user's gender just based on the accounts they follow and some other features.

What we're working on in terms of video is making sure our data asset matches the validation services like Nielsen's DAR.

And on the second one, is that a question more about our consumer marketing or some other thing?

No, it's more video advertising, when you to talk to advertisers in general are they doing parallel campaigns on their TV and also on your platform at the same time, do you have a companion platform or is it a standalone platform?

Yes, great question, James. Yes, we are seeing marketers line up campaigns together. This has historically been an opportunity for us in general. What's interesting though is we still see a ton of underperforming display advertising out in the world, and so what we see happening is money is moving out of display advertising, traditional display advertising, into categories like this. And so marketers ultimately are lining up their Twitter spend with their TV spend.

Essentially what we've done now is we've proven that we already know there's great Twitter ROI when you do that, but there's also proven great TV ROI, and we've done a bunch of research across multiple categories, whether it be auto or consumer packaged goods to show when advertisers line up their buys in that way, it actually led to in some cases over a 10% lift in their TV ROI.

All right, that's all for now, thank you all for joining us and we look forward to talking with you next quarter.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect. Have a good day, everyone.