Twitter’s Stock Tumbles On Lackluster Q2 Results, Weak Q3 Guidance

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TWTR
Twitter

Twitter (NYSE:TWTR) reported mixed second quarter results on Tuesday, July 26. The company’s total revenue increased 20% year-over-year (y-o-y) to $602 million on the back of 18% growth in advertising revenue and 35% growth in its data licensing business. It posted adjusted earnings of 13 cents per share, which was 3 cents higher than the analyst consensus estimate for this quarter.

Twitter’s average monthly active users (MAUs) grew just 3% y-o-y and 1% quarter-over-quarter to 313 million in Q2 2016. The company’s struggle to grow its active user base has been the primary investor concern for the past five quarters, and that is unlikely to change in the near term. Twitter recently started focusing on video to attract new users through its different offerings such as Periscope, Vine and live-streaming.

In a significant development, the company recently signed deals with several companies to live-stream events on its platform, including 120 Sports, Bloomberg TV and the “Big Four” major sports leagues in the U.S.- Major League Baseball (MLB), the National Hockey League (NHL), National Basketball Association (NBA) and National Football League (NFL). Considering the popularity of live sporting events in the U.S., live streaming games presents a huge opportunity for Twitter to improve its largely stagnant user base and attract more advertisers.

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Revenue Growth Driven By Video Ad Engagements

Twitter’s overall revenues rose by 20% y-o-y to $602 million during Q2 2016. Advertising revenue increased by 18% y-o-y and less than 1% over the prior quarter to about $535 million. This was primarily driven by a 226% y-o-y increase in the number of ad engagements due to growth in auto-play video ads. However, the average cost per ad engagement dropped by 64% y-o-y as the cost per view of auto-play video ads is significantly lower than click-to-play ads.

Video consumption has been growing tremendously over the past few quarters on Periscope, Vine as well as on the Twitter platform with the launch of auto-play videos. As a result, video ads have gained much more prominence on Twitter. Recent new features such as live-streaming popular events, Twitter Engage, conversational video ads and ads on Periscope are likely to help expand video views, and consequently ad revenues, going forward.

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Weak Q3 Guidance

For Q3 2016, Twitter’s revenue guidance of $590-$610 million is significantly short of Reuters’ compiled consensus estimate of $678 million. The company cited subdued advertiser demand for the same. Owing to the lackluster results and weak guidance, Twitter’s stock price fell over 10% following the earnings release. twtr5Have more questions about Twitter? Please refer to our complete analysis for Twitter

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