Twitter reports earnings at 4 p.m. ET Tuesday and there couldn’t be more pressure on CEO Dick Costolo to deliver.
Twitter faces a wall of negative sentiment, mostly over whether it can meaningfully grow its user base. Monthly active users (MAUs) were barely more than flat last quarter, and the stock has fallen 43% from $US67.50 at the beginning of the year to around $US38 today.
Those are big stakes for Costolo, who has vowed to restart growth among new users of Twitter. He has ordered parts of the app be redesigned and shuffled product management to achieve that.
Rich Greenfield, an analyst at BTIG, told CNBC that Twitter suffers from negative comparisons to Facebook, which continues to pile on hundreds of millions of new users:
“The users are still far smaller and growing pretty slowly relative to what we’re seeing at Facebook, and I think that’s the real challenge is how big can Twitter be?” Greenfield said on “Squawk on the Street.” “The problem is, how do they convince your mum, how do they convince your friends, [that] they have to be on Twitter the way they’re on Instagram or on Facebook?”
On the user issue, Costolo may benefit from the World Cup, which almost certainly provided a boost in user engagement, if not MAU growth. But that World Cup bump may disappear in Q4, according to the folks at Trefis (via Forbes):
World Cup started around mid June and ended around mid July, which suggests that there will be a notable impact on Twitter’s second quarter metrics. It is highly probable that the uptick in active user base growth will be temporary, and could moderate by the fourth quarter of this year. This is because roughly 50% of the impact will be reflected in the third quarter which includes July.
Previously, at least two analysts have agreed the growth of Twitter’s user base is slowing more than previously thought. Analysts see that MAU number — 255 million in Q1 — as a proxy for future growth.
Business Insider previously reported samples of data taken from Twitter by developers showed growth in monthly active users (MAUs) slowing to just over 260 million in Q2, up only 5 million (or 2%) from Q1. But an average of five estimates from analysts surveyed by Bloomberg called for MAUs to come in at 267 million, up 4%. That would still be a slowdown, because Q1 sequential growth was 6%.
So one big question is, will the World Cup let Twitter blow through negative MAU expectations today? And if so, will that be enough to boost the stock?
All this sets the scene for drama this afternoon. As Barron’s points out, whatever happens the stock is primed for volatility and Twitter’s Q2 call promises to be explosive. If Twitter’s MAUs beat expectations Costolo will be hailed as a genius. If MAUs come in weak, it will renew questions about the role Twitter is supposed to play in a universe where Facebook has one-third of the world’s population.
Here is what analysts are estimating, per Yahoo:
- Earnings per share: -$0.01.
- Revenue: $US283.07 million
Disclosure: The author owns Twitter stock.