It was a dreadful year for Twitter Inc. (TWTR, Financial) in 2016 as the stock was down nearly 30%. The stock, however, was off to a great start heading into 2017, rising nearly 24% year to date.
Shares of Twitter plunged more than 14% in midday trading after the social networking company reported second-quarter results on Thursday. Although the company’s shares are trading approximately 75% below its all-time high, it does not look like a bargain stock.
For the second quarter, the company posted earnings per share of eight cents, surpassing the analysts' estimates by three cents. Revenue came in at $574 million, again surpassing the consensus by $37.38 million. That figure, however, signifies a drop of 4.6% year over year. It is the second time the company has reported negative revenue growth.
Twitter's revenue growth peaked (up 124%) in the second quarter of 2014. Since then, the company’s revenue growth has continued moving downward at a rapid pace. Unfortunately, its revenue growth turned negative in the first quarter of 2017.
On a GAAP basis, Twitter logged a 200 basis point decline in the net profit margin, which came in at -20%. Furthermore, the GAAP loss per share of 16 cents was down from the 15 cents per share loss detailed in the second quarter of 2016.
Moreover, Twitter’s monthly active users (MAUs) only grew 5% year over year and were sequentially flat at 328 million, which is highly disappointing. Twitter’s daily active users surged 12% in the second quarter, but it was still less than the 14% increase reported in the prior quarter.
Although the company’s daily active users (DAUs) escalated 12%, the strong performance was overshadowed by its weak monthly active user growth. The growth is more noticeable in the live video segment, where unique viewers were 55 million in the second quarter, a surge of 10 million viewers compared to the previous quarter.
Apart from this, Twitter’s advertising revenue continues to tumble at a considerable rate. During the quarter, the company’s advertising revenue declined 8% year over year, totaling nearly $490 million compared with $535 million a year ago.
In contrast, Twitter’s chief rival Facebook Inc. (FB, Financial) reported 70 million new users in its most recent quarter. User growth has been a major concern for shareholders, who see Twitter’s 328 million active users lagging far behind Facebook’s more than 2 billion.
Moving ahead, Twitter continues to expect revenue growth headwinds going forward. The company said it does not expect to see its overall revenue growth enhance in the remaining quarters of this year.
Considering Twitter has yet to accomplish GAAP profitability, it is obvious the social media company is not valued for its price-earnings ratio, but rather its growth story. User growth plays a very significant role in the social network space, and judging by Twitter’s weak user growth, its future looks bleak.
Summing up
Twitter is now up just 3.40% year to date, down significantly from 24% a few days ago. The company has failed to live up to its growth expectations. Moreover, the company is not yet profitable on a GAAP basis and will not likely turn profitable anytime soon. In addition, its advertising business will continue to face fierce competition from Facebook.
There is not any solid reason to believe the company could turn its fate around anytime soon. As a result, shareholders looking to profit from the social media industry should stay away from Twitter and consider buying a better-established player like Facebook.
Disclosure: No position in the stocks mentioned in this article.
