Twitter Inc (NYSE:TWTR) stock was severely punished last week, plunging more than 14% on Thursday, even though the embattled social media company not only beat analysts’ second-quarter forecast on both the top- and bottom-lines, but it also issued strong third-quarter guidance. Did the market overreact to TWTR stock or is this a buying opportunity?
TWTR stock, which was up some 20% ahead of the announcement, closed Friday at $16.29, losing all of its year-to-date gains. The shares are now down 2.2% year-to-date, trailing the near-10% rise in the S&P 500 index.
The beat on the bottom line wasn’t enough to dispel fears about Twitter’s inability to monetize its user base, which caused advertising revenue to fall 8% year-over-year.
TWTR Stock: Another Head Fake
The biggest problem, however? TWTR delivered flat user data growth, suggesting that the election-related boost it received in the first quarter was an aberration. The company reported 328 million monthly active users (MAU) for the second quarter, which not only was flat on a sequential basis, but it also fell short of Street expectations for 332.5 million monthly average active users.
And although daily active users rose 12% YOY, Twitter registered just 68 million monthly users in the U.S., which marked a decline of 2 million from last year. By contrast, Facebook Inc (NASDAQ:FB), during its second quarter, added 70 million users worldwide and two million users in North America. Aside from the weak user growth metrics, the company’s second-quarter advertising revenue fell 8% YOY to $489 million, though it marked a slight improvement from the 11% decline in the first quarter.
Overall, this quarter was yet another massive disappointment to investors, who have suffered significant losses over the past several years. Admittedly, there was a point that I believed that Twitter’s efforts, including its conscious push into video, were starting to pay off. I also wagered that the company would see increased traction over the next few quarters, if for no other reason than the fact that President Trump loves the platform.
Where Does Twitter Stock Go From Here?
Clearly, I was wrong. And management did little to assure TWTR stock investors that the company has a timetable to fix its problems. “We do not expect to see our total revenue growth rate improve in the second half of 2017 due to headwinds in the second half (of approximately $75M) associated primarily with de-emphasized revenue products. On a normalized basis (excluding the impact of these headwinds) we could see an improvement in total revenue growth by Q4’17,” TWTR said in the shareholder letter.