Twitter beat Wall Street estimates while bringing a sigh of relief for its investors as it reported $502 million in second quarter revenue. Analysts had expected the company to bring in $481 million in the quarter.
Twitter stock, which closed the trading day up 5.25 percent at $36.56 a share, was continuing its upward trend in early after-hours trading, up about 5 percent. A big news for Twitter since it got back its co-founder Jack Dorsey as the interim CEO after Dick Costola was asked to step down.
Listed below are three major takeaways from Twitter’s strong Q2 2015 earnings report:
1. Good news, revenues growing
Revenues are once again growing for Twitter after a disappointing Q1 2015 when its revenues missed the company’s own guidance, as well as Wall Street’s estimate that the company would report $456.8 million. Twitter reported revenue of $436 million last quarter, of which mobile advertising constituted 89 percent of Twitter’s total ad revenues, which came to $388 million in the quarter.
This quarter the advertising revenue was $452 million, a 63 percent year over year increase, with 88 percent of that revenue coming from mobile ads – that is around $398 million. Investors had expected Twitter to earn a mere $0.04 adjusted per-share profit on the back of $481.28 million in revenue. Twitter ended its quarter with $3.6 billion in cash and equivalents.
Going forward, Twitter expects revenue between $545 and $560 million in its current quarter, generating a very adjusted EBITDA of between $110 and $115 million in the same three month period. Investors expect, at current tally, $555.78 million in third-quarter revenue.
2. User growth still a problem
Revenues were not a problem but user growth still remains a big concern for Twitter. The company reported 304 million monthly active users, up only 2 million since the first quarter. However, Twitter has changed how it defines MAUs, and is now including users who only sign in via SMS, typically people in the developing world with low bandwidth mobile devices. Including so-called “SMS Fast Followers”, Twitter now has 316 million MAUs.
The rationale behind changing the way Twitter calculates MAUs is understood since it is also focusing on developing markets which is still a feature phone dominated market. One of the examples being India which of late has been one of the fastest growing market for Twitter.
But the bad news for Twitter is that US, which gets the company its maximum revenue, has been at a stand still with user growth. In its second quarter financial earnings statement, the social network had 65 million monthly active U.S. users – the exact same amount as last quarter.
Twitter’s interim CEO realizes the problem. “Our Q2 results show good progress in monetization, but we are not satisfied with our growth in audience,” Twitter’s interim CEO Jack Dorsey said in a release. “In order to realize Twitter’s full potential, we must improve in three key areas: ensure more disciplined execution, simplify our service to deliver Twitter’s value faster, and better communicate that value.”
However, Twitter’s Finance Chief Anthony Noto threw cold water on investor hopes by saying that the company’s user growth is not expected to rebound anytime soon. “We do not expect to see sustained meaningful growth in MAU until we start to reach the mass market. We expect that will take a considerable amount of time.”
3. Executives jumping the ship
Another interesting problem Twitter faces right now with growth, is that its core minds are deserting the company. Two executives, including Christian Oestlien, the vp in charge of growth and Todd Jackson, former product management announced that they are leaving the company this afternoon.
This isn’t a good sign for a company which is struggling for user growth and is also on the lookout for a permanent CEO after Dick Costolo resigned in June.
— Rich Greenfield (@RichBTIG) July 28, 2015
Christian who was managing Twitter’s Discovery feature has announced he was headed to YouTube, and Todd, announced that he was leaving for Dropbox.