No one set the bar high for Twitter Inc’s (NYSE:TWTR) fourth quarter, and even then, Twitter managed to get itself under the limbo pole. As a result, TWTR stock is being knocked around by about 10% in Thursday’s early trade.
And that’s particularly discouraging, because Q4 had some nice catalysts.
You had the holiday season coupled with a heated presidential election. And through it all — and even afterward — now-President Donald Trump was bringing plenty of attention thanks to his frequent use of the Twitter service.
But while that was enough to generate a little optimism in TWTR stock heading into earnings — Twitter shares ran up about 13% over the past couple of weeks — it wasn’t enough to lift the company’s financials.
Yes, adjusted earnings of 16 cents per share beat the consensus mark of 12 cents. However, Twitter’s revenues inched up an embarrassing 0.9% year-over-year to $717.2 billion, marking the 10th consecutive quarter of top-line deceleration. Worse, it was well short of estimates for $740.1 billion.
User growth was sluggish, too. Twitter added just 2 million monthly active users sequentially — less than 1% — bringing the total to 319 million.
Here are some of the highlights of Twitter earnings:
- Average daily active usage rose by 11% on a year-over-year basis.
- Mobile advertising revenues came to 89% of total revenue.
- Data licensing reached $79 million, up 14% YOY.
- International revenues increased 12% to $277 million YOY.
Deteriorating Fundamentals
UPDATE: Interestingly enough, CFO Anthony Noto talked about the Trump effect, saying, “The president’s use of Twitter has broadened the awareness of how the platform can be used. It shows the power of Twitter.”
But Noto also went on to say that one person cannot translate into long-term growth.
Let’s face it: There is little innovation occurring at Twitter, as the company has been woefully late in capitalizing on megatrends like chat and streaming video. The result is that Twitter is having a tough time getting the attention from sponsors. Instead, the lion’s share of the online opportunity is going to operators like Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOGL), Snap and Pinterest.
For example, during the latest quarter, Twitter’s U.S. revenues actually dropped by 4% to $440 million.
Now one key issue is that CEO Jack Dorsey is also at the helm of Square Inc (NYSE:SQ). Other than the example of Apple Inc.’s (NASDAQ:AAPL) legendary Steve Jobs, how many executives have been able to successfully run two public companies? I can’t think of any. And it’s difficult enough to run one public company — especially in the fiercely competitive tech space.
This morning, former Microsoft Corporation (NASDAQ:MSFT) CEO Steve Ballmer — who owns about 4% of Twitter — had this to say:
“Every time I talk to Jack, the message is, ‘We need more. More innovation. Move, move, move.’ Get the cost base right and move forward.”
It’s spot-on advice. If Jack doesn’t do something drastic, the situation likely will get much worse, and soon. Wall Street’s history is littered with examples of online operators that suffered long-term declines and never really recovered, including Yahoo! Inc. (NASDAQ:YHOO) and AOL — both of which were bought out as operations were clearly deteriorating.
The Twitter team desperately needs a sense of urgency right now.
TWTR Stock Chart
As a result of today’s breach, Twitter’s shares have plunged below their major 50- and 200-day moving averages, and Relative Strength Index (RSI) levels have sunk from their highest levels in months.
Worse, the move is causing the 50-day to cross under the 200-day, scrawling out the bearish “death cross” formation.
If Twitter does go into full-blown collapse, the next major area of resistance would be Twitter’s 52-week lows around $13.75 — another 18% downside from here.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities, and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
