EC 3 Keys To Twitter's Turnaround

On 26 April 2017, Twitter (NYSE: TWTR) released 1Q FY2017 earnings that exceeded top- and bottom-line consensus expectations. Revenues of $548M (-7.8% y/y) beat by $36.1M, and non-GAAP EPS of $0.11 beat by $0.10. Year-over-year increases in MAUs (Monthly Active Users), average daily active usage, and live streaming hours and viewers also boosted investor confidence. Twitter closed the day +$1.16 to $15.82 (+7.91%).

On the bright side, Twitter beat the (already low) consensus estimates for its earnings. On the not-so-bright side, revenue dropped -23.8% vs. the prior quarter, a sign that advertisers are not as enamored with Twitter as they were last year, resulting in a steep drop in ARPU (average revenue per user) from $2.25/MAU to $1.67/MAU - its lowest since 3Q 2015.

(Click on image to enlarge)

The addition of 9M new MAUs was a slight positive, up +2.82% q/q and +5.8% y/y, with new international MAUs outgrowing US MAUs 3-to-1. Perhaps the biggest boost, however, was the +14% y/y increase in DAUs (Daily Active Users), a number Twitter has released sparingly in the past. Twitter's DAU growth is compelling because it suggests the possibility of daily engagement (and advertising revenue) opportunities.

Of concern, however, is that Twitter has never really defined what it means to be an "active" user - is it posting a Tweet? Engaging with an Ad? Or merely logging on?

Three keys to Twitter's value moving forward

As we've written in the past (see TweetDeck Can't Cure Twitter's Zero Growth Problem), Twitter has a growth problem and a management problem: it has not, over its entire lifespan, been consistent and clear about what it wants to be when it grows up. But could that be changing?

With a slight uptick in both MAU and DAU numbers, Twitter may be in a position to better monetize its existing base (it's not totally clear if those user increases are the result of new sign-ups or the result of existing users becoming more active, perhaps in response to better content, video, live streaming, engagement, etc.).

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Kurt Benson 4 years ago Member's comment

Excellent job highlighting #Twitter's possible potential and shortcomings. I think you've hit the nail on the head regarding the problems the company needs to overcome. But being that they've yet to figure it out, despite having more than enough time to do so, makes me wary of $TWTR.

Fred McClimans 4 years ago Author's comment

Thanks, Kurt. I'm a bit wary as well, but view the Bloomberg deal (and others) as a sign the team is at least gaining a bit of focus in the right direction. If Twitter can conquer the channelization and video aspects, I would expect the user activity gains to follow (assuming bots & trolls are addressed). It is a big change, but at this point, I believe there are not many other viable options left.