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Twitter, Inc. Earnings: User Growth Slows

Twitter's (NYSE: TWTR) second-quarter financial results on Thursday morning lacked substantial evidence of a well-executed turnaround plan. Though year-over-year revenue decline moderated and its adjusted earnings per share improved compared to its financial results in the first quarter of 2017, Twitter's important user metrics were arguably disappointing.

After a short-lived President Trump-fueled bump in monthly active users, investors are left searching for the next catalyst for Twitter's user growth. Even more, with management previously noting that revenue growth would meaningfully lag user growth, slowing user growth suggests it may be a while before the tech company can return to revenue growth.

Image source: Getty Images.

Twitter earnings: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$574 million

$602 million

(5%)

Adjusted EPS

$0.12

$0.15

(20%)

Monthly active users

328 million

313 million

5%

Data source: Twitter's quarterly shareholder letters. Table by author.

On a year-over-year basis, both revenue and adjusted EPS highlight a challenging environment for the company. Both fell 5% and 20% year over year, respectively. 

However, Twitter's year-over-year revenue decrease of 5% improved from its drop of 8% in the first quarter of 2017. Even more, revenue rose sequentially from $548 million in the first quarter of 2017 to $574 million in the second quarter. Meanwhile, adjusted EPS also improved sequentially, from $0.11 in the first quarter to $0.12 in the second.

At first glance, Twitter's 328 million monthly active users might not look too bad. After all, the key metric is up 5% year over year. But on a sequential basis, monthly active users are flat. Furthermore, monthly active users in the important U.S. market dipped by 2 million sequentially, from 70 million in the first quarter to 68 million in the second. On the bright side, this means that international monthly active users were up slightly during this period.

Quarterly highlights

  • Daily active users, toward which management has recently been trying to shift investor attention, were up 12% year over year. Though the double-digit growth rate was nice, it was notably down from Twitter's 14% increase in the first quarter.
  • Twitter is cracking down on abuse, with the number of abusive accounts it is taking action on every day up 10 times compared to the same time last year.
  • Live content generated 55 million unique viewers during the quarter, up from 45 million in the first quarter. 
  • Twitter announced 40 live-streaming partnerships during the quarter, including two 24/7 networks.
  • Periscope streamed 76 million hours of live video, down from 77 million hours in the first quarter.

Image source: Twitter.

Looking ahead

One of the key items I was hoping to get more insight into when Twitter reported its second-quarter results was management's expectations for revenue going forward. Management did provide a window into its expectations, but its forecast wasn't very reassuring. It said it did not expect to see its revenue growth rate improve in the second half of the year. Its recent efforts to de-emphasize underperforming revenue products, Twitter explained, were expected to drive about $75 million of revenue headwinds.

Investors should also keep in mind that management has repeatedly said it expects revenue growth to lag audience growth. This isn't very reassuring now that user growth has come to a halt sequentially.

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Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.