Twitter's (NYSE: TWTR) earnings call this quarter was disappointing and a little alarming for investors.
In this segment from Industry Focus: Tech, analyst Dylan Lewis is joined by senior tech specialist Evan Niu to discuss the top-line numbers, trends in monthly active users, and what about the report made the market so wary.
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A full transcript follows the video.
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This video was recorded on Aug. 4, 2017.
Dylan Lewis: Twitter reported last week and we're a little bit behind on the news here, but I felt like we had to revisit this one for listeners.
Evan Niu: Yeah, it's a pretty widely followed company, a lot of people are interested.
Lewis: In my opinion, it was such a weird update and conference call. You get some of the standard numbers that you expect, but when we were digging through management's commentary on some of these results, it was just so weird, with some of the core metrics you would expect and their explanation for what's going on. Looking at what was actually happening with the business' top line, the revenue was actually pretty good. It clocked in at $574 million, which beat analyst expectations pretty comfortably. Of course, that's still a decline from the $600 million the company posted in the same quarter a year ago. Some struggles with their ad business leading to some of the issues there. The company is still losing money. No real surprise there. Where things start to get curious for me is what's going on with user growth. It was uninspiring. I think part of the reason it was particularly bad for them was, they were coming off of a quarter where they added 9 million monthly active users in the previous quarter, and that was as many as they'd done in the previous three quarters combined. So, I think a lot of people were expecting this to maybe be the period where Twitter is turning it around, and they come and show results, and my gosh, you couldn't come up with something worse to show after something like that.
Niu: [laughs] Yeah. Last quarter, like you mentioned, the previous quarter had 9 million, and it's like, that's the best in years. And then, all of the sudden they follow up with zero sequential growth.
Lewis: Yeah, the ended the first quarter with 328 million monthly actives, and that's exactly where they wound up three months later. Flat sequential growth.
Niu: It's important to look at the breakdown. 328 million, that's global. In the U.S. in particular, they lost 2 million, so international gained 2 million. But the U.S. is where they had the best monetization, so incrementally, that's a hit on their business, just because the international users, they don't really monetize those very well.
Lewis: I think the thing that's kind of curious about that is, Twitter maybe has never been more relevant in the United States. You think about the President of the United States using it to talk about a lot of the things he wants to do with his administration on Twitter, and it being constantly reported, and constantly in the news --
Niu: Or to cyberbully people, too. There's that. [laughs]
Lewis: Yeah! And yet, they're struggling in the domestic market, which is curious to me. But, what's going on with MAUs is not great. But I think it's particularly bad for Twitter, because of basically what management said about some of these user numbers. First thing, looking at MAUs, management blamed seasonal factors for flat MAUs. But they didn't really have an explanation for why.
Niu: [laughs] Yeah. I think CFO Anthony Noto was like, "We don't have the data on what's happening here." It's like, then why are you telling us it's seasonal, if you don't have the data to actually support that? It's kind of a cop-out, kind of like a lot of this quarter was a cop-out.
Lewis: I know you need an explanation, because any time you throw a flat number out there people are going to ask, "What the heck is going on?" But, to say seasonal factors, and not have anything to attribute it to, it's just mind-blowing to me.
Dylan Lewis has no position in any stocks mentioned. Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.