Twitter Earnings Preview: Will International Segment Continue To Drive Top Line Growth?

by Trefis Team
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Twitter (NYSE:TWTR) is scheduled to announce its second quarter results on Friday, July 27. The company reported a slowdown in revenues through 2017, mainly due to a 13% fall in average revenue per user (ARPU) for its U.S. segment. Although ARPU picked up for the U.S. segment in the first quarter, the company reported strong growth in its international segment in Q1. International ad revenues for Q1 jumped 53% y-o-y to $318 million, which the company attributed to strength in Asia-Pacific, particularly growth in video in Japan and performance ad products in China. Strong growth in the region is expected to continue in the June quarter as well. Further, with sustained growth in international regions, we expect that Twitter’s international ad revenue will likely exceed U.S. ad revenue in the coming quarters.

The primary reason for the drop in ARPU in the U.S. last year was the 52% decrease in average cost per ad engagement through the year, despite a 96% annual increase in the total number of ad engagements. This was attributable to much of the ad content switching to video-based ads, which have typically had lower cost per ad engagement compared to other formats. Going forward, Twitter expects to monetize video ads better, thereby improving its ARPU to prior year levels.

For the second quarter, we forecast company-wide MAUs to increase 3-4% to 339 million, with ARPU increasing by around 25 cents over the comparable prior year period to $2 for the quarter. As a result, we forecast Twitter’s net revenue to increase by over 15% to $675 million, while net income and EPS are expected to increase by 100% on a y-o-y basis. We have summarized Q2’18 expectations on our interactive earnings preview dashboard for Twitter. If you disagree with our forecasts, you can change the key drivers – such as active users and average revenue per user (ARPU) – for Twitter to gauge how changes will impact its expected revenue. You can also change margins to arrive at the expected EPS for the quarter.

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