What To Expect From Twitter Through 2018 After Stock Plunge
Twitter (NYSE:TWTR) announced its second quarter results on Friday, July 27, reporting a 24% increase in net revenues to $711 million. Revenue growth was ahead of market expectations as well as our expectations. In addition, its adjusted EBITDA margin expanded by over 6 percentage points over Q2’17 to 37.3% for the quarter. Resulting net income and EPS beat consensus at $134 million and $0.17, respectively.
Despite strong financial results, Twitter’s stock plummeted 20% on Friday to $34 due to a slowdown in user growth. Its total monthly active users (MAUs) were up 3% on y-o-y basis to 335 million for the quarter, but saw a 0.3% decline on a sequential basis. Twitter’s resulting implied revenue per user for the quarter stood at $2.10 for the quarter (or $8.40 on an annualized basis), up from $1.75 in the year ago period.
For the full year, Twitter expects a mid-single digit sequential decline in MAUs through Q3 due to three key factors. Firstly, the company’s decision to no longer renew paid SMS carrier relationships in some markets could impact near term growth. Secondly, the company’s added focus on complying with the European Union’s General Data Protection Regulation (GDPR) could have an impact. And lastly, the company is increasingly focused on improving the health of the platform by removing fake news, hate speech and other such areas, which may take a toll on near-term metrics.
Subsequently, we expect the number of MAUs to stabilize at Q3 levels through the December quarter. As a result, total average MAUs through the year are expected to stand at around 335 million. This is slightly lower than our previous expectation of 342 million MAUs through 2018. On the other hand, we forecast the average revenue per user through 2018 to increase nearly 10% over 2017 levels to $8.15. Resulting net revenues are forecast to stand at just over $2.7 billion, or 12% higher on a y-o-y basis. Further, we expect margins to continue to improve through the year with a 2 percentage point improvement for the full year to 37.5%. Lastly, we forecast net income and EPS to increase by over 15% on a y-o-y basis to $595 million and $0.80, respectively. We have summarized our expectations on our interactive post-earnings full year expectations 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 year.
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