When it comes to talking about the business prospects of the top social media sites, there is hardly any doubt that Twitter always comes to our mind. It has over the years been able to place itself at the top rung as far as corporate earnings and overall performances are concerned. After a number of positive takeaways over the IPO which the company offered in 2013, Twitter is a script that is being closely watched and quite aggressively traded.
Hence it is only quite obvious that the quarterly, half-yearly and annual performance of Twitter are a matter of lot of interest for investors, employees, the industry and various other stakeholders. Let us over the next few lines try and find out what is the direction that Twitter will take over the next few years. This will be looked against the backdrop of their performance in the second quarter of 2015, which certainly will be a good indicator.
Things Are Not Very Impressive
Going by the results of Quarter 2 2015, there are reasons to believe that things may not be exactly moving in the direction Twitter would have expected. Though there is no doubt that the top line growth was better than previous years, the growth of users fell quite below what the market had expected it to be. Further when one looks at the estimates for the remaining quarters there is nothing much to cheer about. The silver lining in the cloud is without doubt that its advertisement revenue growth continues to be buoyant and it showed a growth of around 70% which is very impressive to say the least. However, it might be necessary to look at this performance from the future of micro-blogging. This coupled with the search of a CEO for the company, certainly does not enthuse the market and shareholders very much. There are seemingly some new efforts being planned. It will be too premature to say that the new efforts will immediately start bearing fruits. If the new features do not provide the desired results, especially for power users, it could see sharp decline leading to lower engagement levels, which could hurt performance even more.
There Are A Few Positives Though
While the revenue growth may not have been truly in line with market expectations, there are some positive takeaways too. These include a very strong advertisement growth during the quarter in question. The advertising revenues rose by 63% and touched $452 million during the 2nd quarter. If one takes away the impact of foreign exchange volatility the growth is impressive at 71%. It would be pertinent to mention that this growth was made possible because of robust growth in mobile app downloads, website cards and promoted tweets which included video tweets.
Cost Per Ad Engagement Was Also Positive
Another positive takeaway is that the average cost per ad engagement also got strengthened by 6%. This was possible because of higher advertisement pricing and also gradual shifting towards high priced ad formats. However, many experts believe that this cannot be replicated over and over again and at best it could be a onetime effort. Further it would be also pertinent to mention that international revenue growth was higher at 78% compared to 53% growth in USA. Hence there is a fear that high priced ad formats may not be able to help the company in the long run, especially when Twitter is becoming quite heavily dependent on international markets.
User Base Growth Remains An Area Of Concern
While the past few paragraphs are quite upbeat about Twitter as far as the short term and medium term prospects are concerned, one area of major concern is user base growth. This without any doubt will be the driver for future revenues growths. Hence if this remains depressed there are reasons to be worried about. The total number of MAU which excludes SMS followers moved up to 304 million in the second quarter. This was just a net addition of 2 million users during the quarter. It is therefore an area of concern and therefore faster growth in the future will not be possible especially in the top-line unless this situation is remedied.
Historical Look At Share Price Movements
There is hardly any doubt the movement of stock prices are the best index as far as the investor sentiment is concerned. The same applies to Twitter too. It would be interesting to have a look at the movements of Twitter share prices. The results for the first quarter of 2015 were announced on April 28, 2015. The share traded on 27th April 2015 with a high of $52.54 and a low of $50.82 and a close of $51.66. However the moment the results were announced, the share slid to a high of $41.09 on 29th April, 2015 and a frightening low of $38.07 before closing the day at $38.49. Therefore there is no doubt that the disappointing results already started impacting the market.
In the same light it would also be not out of place to look at Twitter share prices once the second quarter earnings were announced. This happened on 28th July, 2015 and the comparison certainly makes very interesting reading. The stock in the interim period between 28th April and 29th July 2015 slid further down. On 29th the stock opened with a high of $33.24 and a low of $31.06 before closing the day at $31.24 (a slight recovery from the earlier low). Hence there is no denying the fact that the first quarter and second quarter results when looked at it totality, has resulted in the share price sliding from $51.06 to $31.24.
As the article is being written the share price of Twitter has slid down further and on 28th August the share price closed on $26.83 which certainly is a cause for worry. However, the price of Twitter on 28th August 2015 should be looked against the backdrop of China which played havoc with share prices across the world and USA was no exception. Nonetheless there are reasons to believe that Twitter has quite a bit of work to do before it reaches its true potential. However, given the track record of Twitter and the way it has emerged through tight situations, there are quite a few reasons to believe that it will find a way out from the tight situation that it now finds itself in.