Daily Management Review

Twitter’s Lacklustre Q2 Guidance Sees Its Shares Fall


Twitter’s Lacklustre Q2 Guidance Sees Its Shares Fall
Discouraging revenue guidance for the second quarter forecast by the social media company Twitter resulted in its shares dropping by 11 per cent in post-market trading. The company also issued a warning for increasing rising costs and expenses while also forecasting a possible slowdown in growth of user numbers with the pandemic period boom starts to fizzle away. 
The revenues and user numbers as reported by the company were mostly in line with the estimate of analysts which was in contrast to the performance of other digital ad firms such as Facebook and Alphabet.
The company forecast possible second quarter revenue of between $980 million and $1.08 billion which was lower than the average estimates of $1.06 billion of analysts according to IBES data from Refinitiv.
Twitter also said that stock based compensation for new hires would be more than expected this year.
The company had previously stated that it intends to reset after product stagnation for years as it announced in February this year about its aggressive plans for expansion of its user base as well as speeding up roll out of new features for users. The company has also set a target of increasing its revenues two folds by 2023.
"The explosive growth that Twitter experienced during the pandemic is slowing rather rapidly in the aftermath of an eventful 2020 in which the microblogging site benefited immensely from the U.S. elections and a pandemic-driven surge," said Haris Anwar, senior analyst at Investing.com.
There was a 32 per cent year on year growth in the ad revenue for the company for the first quarter at $899 million which beat estimates of the market of $890 million. During the quarter, Twitter raked in total venue of $1.04 billion which was 28 per cent year on year growth and also beat analysts’ estimates of $1.03 billion.
The top two digital advertising platforms, Google and Facebook, both comfortably beat analysts’ estimates for their first quarter.  It is assumed by advertised that both the digital peers of Twitter have more ad formats and better ad targeting capabilities.
Twitter depends on brand advertising to a large extent and it typically experiences a slow beginning following holidays which had been exacerbated by real-world events such as a Capitol Hill riot in Washington on January 6, said CFO Ned Segal when asked why Twitter did not see the same growth surge as other digital ad firms during a conference call with analysts.
There was a 20 per cent year on year growth in the number of daily active users during the quarter ay 199 million, Twitter said, while analysts' estimates were at 200 million, according to FactSet data.
The growth of Twitter’s monetizable daily active users (mDAU) – the term that the company uses for daily users who can view ads, could reach "low double digits" in the next quarters and could likely reach a low point in the second quarter, warned the San Francisco-based company.
The company intended to retain the users that it had gained during the Covid-19 pandemic so that "as economies open up, as the events that they've been watching from their sofas are now available in person...they continue to come to Twitter," Segal said.