If you’re a fan of Twitter and also like being depressed, take a look at yesterday’s headlines. The Twitter world seemed so much better back then, as the past often does for the struggling company. “Twitter Inc (TWTR) Stock Is Finally Worth a Bullish Bet,” Investorplace declared. “Why Twitter’s Next Earnings Report Might Not Be as Bad as You Think," Fortune dreamed.
The optimism was crushed this morning when Twitter turned in an earnings report revealing it hadn’t grown its user base at all in the second quarter of 2017. Twitter’s monthly active user number stands at 328 million, exactly where it was three months ago. Even worse, the company lost 2 million monthly users in the high-spending United States, dropping from 70 million to 68 million. The growth surge responsible for much of the optimism — Twitter added approximately 9 million monthly users in the first quarter of 2017 — was exposed as a blip. “Likely no more than a one-time gift,” Monness, Crespi, Hardt & Co. analyst James Cakmak advised in a note to investors.
While it’s unwise to read too much into a single quarter’s performance, this one was particularly brutal for Twitter. The company’s stock closed down more than 14% as investors’ flickers of hope that it could sustain growth from earlier this year went out. “The expectations certainly were that Q1 was the beginning of a new normal, and I think it’s clear that wasn’t the case,” Cakmak told BuzzFeed News in a phone interview. “Not only was my estimate wrong, the actual [monthly user growth] number was zero.”
Though Twitter beat Wall Street’s revenue and profitability expectations, user growth is critical because Twitter needs that growth to credibly challenge Google and Facebook, two giant internet companies that give marketers access to massive audiences, along with the ability to target with precision. “It just makes for a difficult investment,” Aegis Capital Managing Director Victor Anthony told BuzzFeed News, after noting that Google and Facebook are going in the opposite direction, growing users and revenue.
Hours after earnings, the bad day’s magnitude became clear in a new set of headlines. Bloomberg said, “Be Afraid for Twitter. Very Afraid.” Seeking Alpha scorned, “Twitter: This Is Ridiculous.” And Forbes yelled, “Twitter Is 'Failing' Because It's A Hellish Landscape Of IMHO Hot Takes And Trolls.”
Yes, about those trolls. Twitter is still having trouble reining them in, even as it’s made user safety its top priority. Earlier this month, BuzzFeed News found 27 instances of what appears to be clear-cut harassment that were dismissed by Twitter. The company itself conceded that “there is still much work to be done.”
And the issues go on. Twitter still doesn’t have a head of human resources at a time one would expect the position to be a priority, given the tech industry’s recent scandals. It’s also experiencing a talent exodus among executives critical to its revenue operation. Since February, Twitter’s lost its partnerships VP Ali Jafari, Niche head Darren Lachtman, global content partnerships VP Ross Hoffman, and global brand and creative strategy VP Joel Lunenfeld.
For those looking for reasons to stay optimistic, there are some. Twitter’s daily user count is growing. In a note, BTIG analyst Rich Greenfield said the daily user count is “the most important metric in determining Twitter's revenue potential.” And Twitter’s finally named a new CFO after trying to find one for eight months. It also hired the well-respected advertising technology veteran Bruce Falk to run revenue product.
“I’m rooting for these guys,” Aegis Capital’s Anthony said, noting that he remains optimistic about Twitter’s long term potential. But for now, Anthony’s rating on the stock speaks volumes: He’s encouraging investors to sell.
Alex Kantrowitz is a senior technology reporter for BuzzFeed News and is based in San Francisco. He reports on social and communications.
Contact Alex Kantrowitz at email@example.com.
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