What To Watch For In Twitter’s Third-Quarter Earnings

by Trefis Team
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Twitter (NYSE:TWTR) is scheduled to announce its third quarter results on Thursday, October 25. 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. ARPU picked up for the U.S. segment in the first quarter, and the company reported strong growth in its international segment in the quarter as well. 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. The trend changed in Q2, with a slowdown in monthly active users (MAUs) but a strong increase in ARPU. This trend is expected to continue through the September and December quarters.

We have summarized our Q3 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.

Market Trends Impacting Growth

There are three main reasons for the expected slowdown in MAU growth through September and December quarters. 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 bot accounts, fake news, hate speech and other such content, which may take a toll on near-term metrics.

On the other hand, ARPU growth is expected to continue at a rapid pace through the end of the year. For the third quarter, we forecast company-wide MAUs to increase 2-3% on a y-o-y basis to 338 million, with ARPU increasing by around 25 cents over the comparable prior year period to $2.05 for the quarter. As a result, we forecast Twitter’s net revenue to increase by over 18% to nearly $700 million. In addition, we expect the company’s adjusted EBITDA margin to continue to be around 2-3 percentage points higher over the comparable prior year period. As a result, net income and EPS are expected to increase by 35-40% on a y-o-y basis to $110 million and 14 cents a share, respectively. Our forecasts are in line with consensus estimates.

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