Why Twitter Inc. Shares Plummeted Again

By Markets Fool.com

What: After market close on Tuesday, Twitter (NYSE: TWTR) reported slower-than-expected revenue growth for the second quarter. The underwhelming result adds to the company's streak of rapidly decelerating year-over-year growth rates. The stock sank as much as 15% on Wednesday as investors digested the news, and closed the day down 14.5%.

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Image source: Twitter.

So what: Twitter reported second-quarter revenue of $602 million and non-GAAP EPS of $0.13. While revenue was lower than analysts' consensus estimate of $607 million, non-GAAP EPS was above the average estimate of $0.10. Despite the mixed results, investors seemed to hone in on the company's decelerating revenue growth -- a trend that was highlighted further by its worse-than-expected guidance. Twitter said it expected third-quarter revenue would fall in the range of $590 million to $610 million -- significantly lower than analysts' consensus estimate of $678 million.

Twitter's second-quarter revenue was up 20% year over year. This compares to the social network's 36% and 58% year-over-year revenue growth in the first quarter of 2016 and the fourth quarter of 2015, respectively.

Twitter management cited "less overall advertiser demand than expected" as the reason for the worse-than-forecast revenue.

Now what: In their letter to shareholders, Twitter's management said they plan to take corrective action by "building a rich canvas for marketers; driving increased ROI with improved measurement, bidding, and relevance, and increasing scale by leveraging Twitter's unique total audience." Further, they continued:

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We believe these areas of focus will enable us to deliver value to advertisers of all sizes and capture incremental budgets for both video and direct response ads over time. Here's an update on each of these key priorities and how we're executing against them.

Providing some examples of these efforts, management cited plans for additional investment in video, including advertising focused around the company's NFL live-streaming content, and new ad product features, including an easier way for advertisers to serve skippable, pre-roll ads of varying lengths ahead of "the most premium mobile videos."

Twitter stock is down about 54% in the past twelve months.

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Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.