Twitter tumbles as monthly usage declines

Twitter shares tumbled in pre-market trade on Friday as the company said average monthly active users fell in the second quarter, although revenue beat expectations.

Average monthly active users declined to 335 million from 336 million in the previous quarter, but were up from 326m in the same period a year ago, as the company chose not to move to paid SMS carrier relationships, prioritising "the health of the platform", and, to a lesser extent, GDPR. Analysts had expected monthly active user numbers to be up around 1 million from the previous quarter.

Still, revenue for the quarter topped expectations, up 24% on the year at $711m, versus an estimate of $692m, while earnings per share were in line at 17 cents. Advertising revenue, meanwhile, grew 23% year-over-year to $601m.

US revenue rose 10% on the year to $367m and international sales were 44% higher at $344m.

Adjusted earnings before interest, taxes, depreciation and amortisation came in at $265m compared to $178m in the same period a year ago, representing an adjusted EBITDA margin of 37%.

Chief executive officer Jack Dorsey said: "Our second quarter results reflect the work we’re doing to ensure more people get value from Twitter every day. We want people to feel safe freely expressing themselves and have launched new tools to address problem behaviours that distort and distract from the public conversation.

"We’re also continuing to make it easier for people to find and follow breaking news and events, and have introduced machine learning algorithms that organize the conversation around events, beginning with the World Cup. These efforts contributed to healthy year-over-year daily active usage growth of 11% and demonstrate why we’re investing in the long-term health of Twitter."

For the third quarter, the company guided to adjusted EBITDA of between $215m and $235m and adjusted EBITDA margin of between 33% and 34%.

Neil Wilson, chief market analyst at Markets.com, said the slump in Twitter shares mirrored Facebook’s nosedive earlier this week as he suggested we have reached a "social media tipping point".

"Although we saw a beat on revenues as the efforts to monetise the platform seem to be paying off, monthly active users fell by one million from the previous quarter and is projected to fall further. We already knew that a recent large expurgation of fake accounts will impact Q3.

"GDPR seems to have had some impact on Twitter, but the main causes attributed by the company to the decline in users was not moving to paid SMS carriers and ‘prioritizing the health of the platform’, which is to do with cutting out fake accounts."

"After the Facebook meltdown initial thoughts are that there are perhaps two things at work vis-a-vis the share price. One, expectations for revenue growth are being fundamentally reset in the social media space. Two, today’s reaction is maybe overdone as investors have been spooked by the horrid earnings call from Facebook. Everyone knew that Twitter was full of fake accounts - why their removal should be impacting the share price in the way is unclear - investors may be better advised to keep a check on earnings and revenue growth instead."

At 1215 BST, the shares were down 15% in pre-market trade to $36.60.