Despite beating analysts’ consensus forecasts, the devil turned out to be in the detail of the second quarter report released by Twitter (TWTR + 5.30%) as it got hammered in after-hours trade, dropping in price by more than 12%.
Twitter shares, which had surged by almost 6% after the earnings had been released, started falling after CFO Anthony Noto advised investors not to anticipate any meaningful growth in the size of the Twitter audience for a “considerable” period of time. These comments dampened investor hopes that the stagnation in Twitter user growth of recent months was over and progress would be made in expanding the number of Monthly Active Users (MAU).
Noto said, “We do not expect to see sustained meaningful growth in MAU until we start to reach the mass market. We expect that will take a considerable amount of time.”
Twitter is also in the throes of leadership problems following the resignation of CEO Dick Costolo at the beginning of July. This resulted in Twitter co-founder Jack Dorsey taking over in an interim capacity while the board seeks out a new CEO. Dorsey may well be a candidate for the position.
Speaking on an earnings conference call after release of the quarterly report, Dorsey addressed the situation that Twitter finds itself in with brutal honesty.
He said that the results were “unacceptable” and he’s “not happy about it.” These comments were made on Periscope, the live streaming service that Twitter had acquired earlier in the year.
He named three specific areas where Twitter has to improve performance to move forward effectively.
Ensure a more disciplined product execution
Simplify the service to deliver Twitter’s values faster
Better communicate the company's values
The numbers coming out the company's second quarter report beat analyst forecasts despite the gloom and doom with regard to future growth.
Revenue of $502 million was up 64% year to date and was 5% better than analyst forecasts.
Also, the adjusted EPS of 7 cents per share exceeded analyst consensus of 4 cents a share.
Monthly active users had grown to 316 million against the 302 million reported in Q1 with Twitter adding SMS followers to the MAU total. The company also said that its user growth in the U.S. was stagnant at 66 million including SMS users. All the new users emanated from international client regions.
The company forecast revenue for Q3 of $545b t0 $560 million while analyst expectation is for $555.8 million.
The company also announced that it will introduce a raft of new measures that will make the service more user friendly while capitalizing on areas where it has its greatest popularity. Twitter has recently done a deal with Google which should expand the reach of user tweets beyond the logged in service users.
MT4 Chart: Twitter