Q2 2016 earnings: Facebook marches ahead while Twitter is still crawling

Facebook had another spectacular show, the network hits 1.71B users while making $6.44 billion in revenue. Twitter, however, is still battling its user and revenue problem

Facebook_q2_2016

The week has been interesting – Yahoo finally finds a buyer in Verizon to be sold for a mere $4.83 billion in cash, which includes Yahoo’s advertising, content, search, and mobile activities. However, Yahoo’s stakes in Alibaba and Yahoo Japan aren’t part of the acquisition. These stakes are worth tens of billions of dollars alone.

In fact, in 2008, Microsoft made a $44.6 billion bid for Yahoo! (good times when it had the ‘!’ sign in its logo). In short a sad demise for a tech giant that had once aspired to buy Google.

Another sad story is being written in the social networking space – the story of Twitter’s continued stagnant user growth and revenues from last year. On the other side is the mammoth growth of Facebook. Q2 2016 earnings reports have been revealed and the results are same.

Q2 2016 – Twitter still has big problems

Twitter’s Q2 earnings – 313 million monthly active users up just 3% on a year ago, and up less than 1% on its previous quarter. User growth has been a problem before CEO Jack Dorsey came on board, but this quarter revenues have been a bit of a disappointment. While revenues are up 20% on a year ago, the numbers were a miss on sales and a beat on EPS: analysts were expecting $606.8 million in revenue and adjusted earnings of $0.10 per share. It also reported a Q2 GAAP net loss of $107 million; non-GAAP net income was $93 million.

But investors are more jittery with Twitter’s Q3 guidance. The company says it is targeting $590 million to $610 million in revenue next quarter. Early analyst estimates pegged that number at $678 million, according to Yahoo Finance. So that’s a big discrepancy, reports Recode. Stocks went down by 10% in after trading hours.

The story wasn’t different in Q1 2016 – the company had missed out on revenues and had issued more bad news to follow in Q2. The state of Twitter’s dipping revenue growth was very well explained by the MoffettNathanson analyst Michael Nathanson. (Read: Twitter Q1 2016 Earnings: Now It Is Also Struggling With Its Ad Business)

This year’s revenue state from advertising to data licensing has been constant in the first half of 2016. However, Twitter said Mobile advertising revenue continues to lead the way, accounting for 89% of total advertising revenue. Mobile was also 82% of total MAUs.

twitter-revs Q2 2016

International markets are slightly better for Twitter with MAUs of 247 million for Q2, up 4% year-over-year and up 2 million on the 245 million of Q1. A trend that was evident in Q1 too. The marginal growth has been due to the growth from international markets which has been standstill from Q3 2015. User growth has completely stopped in US from 2015 and the state has been same in both the quarters of 2016. That isn’t encouraging for the street, investors and the team at Twitter.

The disappointing Q2 revenue story was preceded by a new marketing campaign. The re-positioning exercise from Twitter clears the air once for all; It is not a social network but a source for news, entertainment and politics – from “big events to everyday interests.” In other words the world shouldn’t confuse Twitter as another Facebook clone. Twitter is now trying to capitalize on the latest communication of what’s happening in real time with two new videos and digital ads that will kick off its broader marketing efforts.

Whether this new brand positioning will make Twitter’s life better is something time will tell. But for now CEO Jack has listed five priorities for the remaining two quarters: “refining our core service, live-streaming video, creators and influencers, safety, and developers,” and the company believes it has made “meaningful progress” across each of these in the past quarter.

Q2 2016 – Facebook growing like never before

Unlike Twitter, Facebook continues to crush market expectations with every passing quarter. The company made $6.44 billion in revenue and $0.97 EPS, blowing past estimates of $6.02 billion and $0.82 EPS.

Wall Street reacted to the positive earnings with a 7.5% bump in afterhours trading to $132.60. It also hit another milestone: 1 billion daily mobile user.

Facebook raked in $2.05 billion in profit, compared to $719 million a year ago, while average revenue per user is now $3.82, up a big 15% from last quarter. Revenue growth was 59% year over year with 84% of ad revenue from mobile, total ad revenue was $6.24 billion.

Facebook nearly extends the good show it had in Q1 2016 – beating market expectations the network had made $5.38 billion in revenue and $0.77 earnings per share. (Read: 4 Key Takeaways From Facebook’s $5.38B Q1 2016 Earnings Report)

However, the social network continued steady growth just slightly slower at 3.63% compared to last quarter’s 3.77%, adding 60 million monthly users this quarter to reach 1.71 billion. However the monthly users count is the spotlight in the user growth.

facebook-users-q2-2016

Total DAUs reached 1.13 billion up 17% for the year, with 1.57 billion mobile MAUs up 20%.

facebook-dau-q2-2016

Other milestones reached: Facebook Messenger hit 1 billion active users, Instagram reached 500 million users and Facebook sees 2 billion searches per day, up from 1.5 billion a year ago. A clear indication that going forward Facebook might win its ongoing quest to be the public chatter.

The quarter has also brought bad press around Facebook’s deliberate suppressing of conservative news trends and the continuous controversy around News Feed. (Read: Why The Latest Facebook News Feed Change Is Going To Hit Small & Medium Publishers Real Bad)

Another thing that is bothering Facebook is the ‘ad load’ which might curb the revenue growth in the coming quarters. “We anticipate ad load on Facebook will continue to grow modestly over the next 12 months and then will be a less significant factor driving revenue growth after mid-2017. Since ad load has been one of the important factors in our recent strong period of revenue growth, we expect the rate at which we are able to grow revenue will be impacted accordingly,” Facebook CFO David Wehner said.

In short there will be a time when Facebook cannot squeeze more ads onto people’s News Feed and that will affect the network’s core business model. While Facebook believes  this might happen in 2017, Wall Street analysts think it might be happening sooner. This, however, won’t stop Facebook from citing new reasons to have you pay extra for its ads.

For now the social network giant is crushing Wall Street expectations and investors are happy, unlike Twitter.