Amazon Paid Almost $1 Billion for Twitch in 2014. It’s Still Losing Money.

Documents reviewed by The Wall Street Journal show Twitch’s biggest-paying users are opening their wallets less, and third-party data reflect that growth in new users and engagement has slowed.

Following two rounds of layoffs in the past year, staffers are concerned that a third round could come this fall following an annual operational review, according to people familiar with the matter. Amazon Chief Executive Andy Jassy, who took over in 2021, has led a profitability review at the company and shown little tolerance for unprofitable businesses. 

Insiders said they worry Twitch is at risk of becoming what they called a “zombie brand” at Amazon—internal projects or acquisitions that have been sidelined because they haven’t lived up to expectations. These staffers pointed to book-review app Goodreads, online task finder Mechanical Turk and discount website Woot.

A spokeswoman for Amazon said it has always taken a long-term view of Twitch and noted its ability to attract harder-to-reach audiences. The company said it remains confident in Twitch’s potential.

Amazon’s journey with Twitch underscores the challenge companies face as they seek to grow through acquisitions, especially when they bet on trendy startups that aren’t making money.

Twitch, which remains a tiny part of Amazon, continues to get millions of visitors a day. However, its business model is challenging. Enabling tens of thousands of simultaneous livestreams is expensive, and the company has had to invest in tools to moderate the content. Insiders said the content itself poses challenges, as long-form live video doesn’t align well with selling ads.

“I’ll be blunt: We aren’t profitable at this point,” Twitch CEO Dan Clancy said on the platform in January, shortly after the company laid off around 500 workers. More recently, Twitch closed its operations in South Korea, disbanded its Safety Advisory Council and raised prices on its subscription offerings for the first time.

Broader trends aren’t in Twitch’s favor. Spending on videogames has slowed, and consumer preferences have generally shifted to short, concise videos spanning a range of topics.

Still, Twitch has little competition for livestreaming of videogame play, and the company said it is seeing success beyond videogames with its “Just Chatting” category, where creators discuss a variety of topics with viewers, and that its sports, travel and music sections are growing. 

The company said a livestream in June featuring creator Kai Cenat and comedians Kevin Hart and Druski broke the company’s North American record for most viewers when it reached 712,600 concurrent viewers. It surpassed a 2018 record set by musician Drake and Ninja, a videogame creator.

Twitch said its creators’ connections with their audiences can be beneficial for advertisers. The company’s users have also included former President Donald Trump, rapper Post Malone and pro race-car driver Charles Leclerc.

Profit woes from the start

In 2011, Twitch was spun out of livestreaming platform Justin.tv, with a focus on videogames. About a year later, Amazon took up game publishing and saw Twitch as a vehicle for promoting its titles.

The company also sought to convert Twitch’s mostly young, male users into customers of Amazon’s other businesses and further leverage the site’s live-video strengths, analysts said.

For many early Twitch employees, working on the livestreaming service was a passion project, with little focus on profitability or accountability built into the company’s culture, according to people familiar with the matter. Some employees didn’t take their jobs seriously after the acquisition, they added, an attitude colloquially referred to in Silicon Valley as “rest and vest.”

Producing profit was a problem from the beginning. Twitch executives presented a three-year profitability plan during one of Amazon’s annual reviews, only to reintroduce the same plan in subsequent reviews, according to people familiar with the matter.

The tech giant has taken a mostly hands-off approach, current and former staff members said, as it focused on the company’s bigger projects and businesses. In 2021, Amazon began integrating Twitch’s ad sales team into its own, aiming to drive better results. 

Amazon doesn’t break out Twitch revenue figures. In 2023, the livestreaming service generated about $667 million in ad revenue and $1.3 billion in commerce revenue, according to internal documents reviewed by the Journal. That amount accounted for less than 0.5% of Amazon’s total 2023 revenue.

Amazon is expected to report its second-quarter results on Thursday. 

‘Fortnite’ and the pandemic

Twitch grew rapidly when its popularity soared from the success of the game “Fortnite” in 2018 and again during the pandemic’s lockdowns, but its expenses rose too. 

The company spent more than $100 million on exclusive contracts for top broadcast talent and for the rights to stream major esports events, people familiar with the matter said. It invested in new products that it ended up abandoning or deprioritizing, such as a communications platform, a karaoke offering and watch parties.

“If you can’t be profitable when you have a surge in demand, you have something structurally wrong,” said Mike Hickey, a digital-entertainment analyst at Benchmark.

In recent years, Twitch’s biggest payers, who are crucial to its revenue, have been spending less on the platform’s subscriptions and donations to creators, according to documents reviewed by the Journal. Twitch takes a cut of those payments, and internal projections forecast that if that trend continues, the platform could shed nearly a quarter of a billion dollars in revenue by the end of 2025.

The company said overall commerce revenue is continuing to grow year over year.

Twitch’s advertising sales have plateaued since the pandemic ended, according to the documents and people familiar with the matter. 

Overall, the platform is the 18th largest source of U.S. web traffic, down from fourth in 2014 when Amazon bought it, according to network analytics and security firm Nokia Deepfield. Web traffic is a measure of bandwidth used by the site.

Change at the top

Last year, Twitch’s longtime CEO and co-founder Emmett Shear left the company and was succeeded by Clancy, formerly an executive at Google and Nextdoor. Clancy joined Twitch as president in 2019 before taking the reins from Shear.

In a “State of Twitch” memo issued to employees in May, Clancy listed improving the platform’s mobile experience to drive shorter and more frequent user sessions as a critical goal.

Reflective of that plan, Twitch introduced a different look to its mobile app to a small subset of creators in May with new features, including a so-called discovery feed that is filled with short snippets from creator livestreams. The company said it plans to release its new app, its first redesign since 2019, to all users this year.

Employees have criticized Clancy for his work trips to meet Twitch creators around the world and host livestreams from various locations as the company is laying off employees and saying it remains unprofitable.

In a June email to employees viewed by the Journal, Clancy defended his actions and included the itinerary of his Europe trip with stops in France, Switzerland and the Netherlands. Each one included “medium sized dinners” with creators, he wrote. 

“If I was running a manufacturing company I would be meeting with the companies that provided us raw materials as well as the companies that we sold our widgets to,” Clancy wrote in the email. “Our streamers serve a similar role to Twitch.”

Write to Salvador Rodriguez at salvador.rodriguez@wsj.com, Sarah E. Needleman at Sarah.Needleman@wsj.com and Sebastian Herrera at sebastian.herrera@wsj.com