Twitter needs to post a user growth reversal, and fast

If things are not to get ugly when Twitter reports earnings on 26 April, the firm needs to reverse the decline in monthly active user growth.

Source: Bloomberg

Twitter’s earnings report next week is, in all probability, not going to be about the numbers. It may not even be about the forecast for the next quarter.

Instead, it will focus on user growth (in social media parlance, monthly active users, or MAUs), and this is an area that does not make for pretty reading.

It can be summarised in the graph below:

This is not a pleasant chart. By contrast, Facebook’s looks like this:

This comparison seems to flatter Twitter. But Facebook’s 3% growth indicates an addition of 46 million monthly active users. Given that Twitter’s monthly active users number is around 320 million (including its SMS Fast Followers), the gulf between them becomes clear.

Compared to Facebook, Twitter is a minnow, a problem that returned CEO Jack Dorsey acknowledges. Facebook has proven its ability to penetrate new markets and replicate its appeal across geographies. By contrast, Twitter has a limited appeal, and is still far behind its rival in monetising advertising using video.

Twitter’s management needs to set out in comprehensive fashion how it is going to boost user growth and start getting more money out of earnings, both on the home platform and on periscope. If it fails to do this, the reaction could be unpleasant.

The actual expectations are for revenue of $607.9 million and earnings of 10 cents per share, up 39.5% and 42.9% respectively from the same period last year.

Like the oil price, Twitter shares have had a tendency to go through periods of calm followed by sudden drops. So far this year they have held above the lows of February, but since the beginning of April $17.90 has marked resistance to any upward progress.

The high water mark of 2016 was $20, seen at the beginning of March. Any upside momentum needs to clear this level over the longer term, and if user growth disappoints I expect a return to the lows of 2016 near $14, and possibly further downwards. 

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