Twitter Announces Q2 User-Surge; But Revenue Falls Short

Twitter Inc. (TWTR) has announced its Q2 earnings reflecting a growth of 186 million monetizable daily active users beating consensus estimates of 172 million- and up 34% from the previous year. Shares rose nearly 8% on the report.

However Q2 revenue was $683 million – a 19% decrease compared to last year and short of consensus estimates of $702 million. Twitter also reported Q2 Non-GAAP EPS of -$0.16 missing consensus estimates by $0.16 and GAAP EPS of -$1.56 which fell short by $1.41.

Additionally, the report highlighted the pandemic’s impact on advertising revenue in late March with a gradual recovery that came in late May to mid-June. Ad revenue dropped 22% year-over-year in constant currency to $562M, missing the $582.4M consensus.

In a July 23 earnings report, Twitter CFO Ned Segal said, “Despite the pandemic, brands have found innovative ways to join the conversation on Twitter to connect with their customers. We have completed our ad server rebuild and are making progress accelerating our performance ads roadmap. With a larger audience and progress in ads, we are even better positioned to deliver for advertisers.”

Twitter CEO Jack Dorsey stated regarding the Q2 results, “Our product work is paying off, with tremendous growth in audience and engagement.” 

He also addressed the recent hack on several high profile figures on Twitter, saying, “We moved quickly to address what happened and have taken additional steps to improve resiliency against targeted social engineering attempts.”

During an earnings call, Dorsey said that the company is looking at new methods to monetize users to increase advertising revenue- and one option is a subscription-based model. “You’ll likely see some tests this year,” he said, adding “We do think there is a world where subscription is complementary, where commerce is complementary, where helping people manage paywalls … we think is complementary.”

However Morgan Stanley analyst Brian Nowak noted that he doesn’t think a subscription service would work for Twitter, saying that only roughly 10% of users are willing to pay $5 per month to eliminate the ads and receive better analytics services. He added that most people aren’t willing to pay at all. The analyst reiterated a Hold rating on the stock and a price target of $32 (18% downside potential).

Overall, 5 analysts assign Buy ratings, 19 Hold ratings, and 2 Sell ratings, giving TWTR a Hold Street consensus. The average analyst price target stands at $33.43, suggesting 14% downside potential, with shares up 23% year-to-date. (See Twitter’s stock analysis on TipRanks).

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