On Tuesday afternoon, Twitter’s earnings leaked early and the results were a disaster.
Revenue missed expectations, as did the company’s outlook for the second quarter and the full-year, and these numbers sent the stock down 18%.
But perhaps nothing was more brutal than the question posed by Citi analyst Mark May, who asked of Twitter’s quarter: “Growing Pains or the New Normal?”
The “new normal,” for those of you more familiar with economic themes of the past several years, is the idea popularised by Bill Gross, who has said that the US and world economy is now stuck in a low-growth mode. This idea that the economy will basically perform more poorly than it has in past decades is also broadly captured by the term “secular stagnation.”
Currently, Twitter is still viewed by the market as a growth company, meaning that investors aren’t expecting earnings and revenue growth to start slowing down but continue accelerating going forward.
Were Twitter to be stuck in a period of “new normal” or just so-so growth, this would spell trouble for the company.
In the first quarter, Twitter reported revenue growth of 74% on user growth of 18%. In the fourth quarter, revenue grew 97% on user growth of 20%.
In his note, May writes:
While [management] is actively pursuing initiatives to improve user growth, the effectiveness of its ad products, and overall monetisation, we continue to believe that many of the bull case assumptions are priced in even at after-market levels. We need to gain more confidence in these user and monetisation growth initiatives before getting constructive.
May has a Neutral rating and a $US44 price target on the stock.
In pre-market trade on Wednesday, Twitter shares were down about 2.8%.