Twitter’s (TWTR) quarterly earnings report is becoming a regular spectacle, and the latest edition was no disappointment.
Twitter’s second-quarter earnings report sent TWTR stock up some 11% in after-hours trading Tuesday … but the rally quickly devolved, and Twitter shares even dipped into the red.
— StockTwits (@StockTwits) July 28, 2015
After the Street had time to crunch the numbers, TWTR stock got some much-needed buying, with the price moving up about 5% — on top of a 5% gain during regular trading — but then turned negative yet again.
So, what sent Wall Street scattering in both directions?
Revenues soared by 64% year-over-year to reach $502 million, which easily topped the consensus estimate for $481.1 million. Earnings of 7 cents per share also were good for a significant beat, and represented a 250% jump from earnings of 2 cents in the year-ago period.
Guidance for the third quarter, however, was mostly in line. Twitter is projecting revenues of $545 million to $560 million, while the Street’s looking for $556 million in sales.
Still, while the second quarter was better than expected, the company clearly still faces some issues.
For one, those beats came on some less-than-lofty expectations following a horrible Q1 report – a report that sparked an 18% plunge in one day, and preceded CEO Dick Costolo abruptly announcing his resignation.
Of course, financials really aren’t even the key.
Investors seem mostly concerned about user growth, which is fair, as it’s critical for any social media property. The good news is that, from April to June, TWTR added roughly 8 million monthly active users (MAUs) on a quarter-over-quarter basis. But analyst estimates were all over the map, from lowball forecasts of a couple million to some expectations for more than 8 million.
Twitter now totals 316 million MAUs, but that metric has undergone a revision, as TWTR now includes all users that follow via SMS (which you typically get in emerging nations). And Twitter’s user growth for Q2 indeed came from overseas, as U.S. MAUs remained constant at 66 million sequentially. International users jumped from 242 million to 250 million … and when excluding SMS users, the overall increase was only 2 million new users.
However, user growth might not be so rosy in future quarters. On the Twitter earnings conference call, CFO Anthony Noto indicated that there will likely be no “meaningful” MAU growth for a “considerable” amount of time.
So what more can TWTR stock holders really expect going forward? Twitter still trades at a hefty 54 times forward earnings vs. just 36 for rival Facebook (FB) — a company with a user base that’s not only larger than Twitter’s, but also growing faster. Not to mention FB has a variety of levers to pump up revenues, including Instagram and WhatsApp, not to mention the potential of the Oculus VR.
Meanwhile, Facebook has a proven management team that understands how to balance monetization with growth. TWTR, on the other hand, has an interim CEO and is still suffering from a brain drain. Just today alone saw two more high-profile Twitter departures: Todd Jackson (Director of Product Management) and Christian Oestlien (Vice President of Product Management).
Twitter’s initial gains looked like a relief rally, and even then, relief quickly sank into despair once more.
And without a clear-cut plan to bring back sustainable growth, investors shouldn’t expect much better out of TWTR stock.
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.