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Twitter Stock Tumbles Due to Weak Ad Revenues in Q1

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Twitter (NYSE:TWTR) stock rose by as much as 12% in pre-market trading today. The company reported upbeat first-quarter earnings results before the market opened. Twitter didn’t provide guidance for the current quarter due to the COVID-19 crisis. However, the stock fell over 6% during the trading session today. There was been a lack of recovery signs in the advertising business in the earnings report. In contrast, Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) saw signs of recovery and stability in April, as reported in their respective earnings results. While Alphabet posted its first-quarter results on April 28, Facebook reported its results on April 29.

So far, Twitter stock has declined around 3% YTD (year-to-date) on April 29.

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Twitter’s Q1 results

Twitter posted an adjusted EPS of $0.11 in the first quarter. The company’s profits were higher than analysts’ expectations of $0.10. However, the earnings fell 70.3% YoY (year-over-year) from $0.37 per share. Twitter’s revenue of $808 million also beat analysts’ estimate of $776 million. The revenues increased 3% YoY in the quarter. The company generated strong sales at the beginning of the quarter, while the pandemic dented its sales in March.

As expected, the company experienced weakness in ad sales due to pressure amid the coronavirus pandemic. The total advertising revenue (which adds around 84% to the total revenue) was $682 million in the first quarter—up by only $3 million compared to last year. The total ad engagements increased 25% YoY in the first quarter.

However, in Twitter’s first-quarter shareholder letter, the company stated that its total advertising revenue declined by approximately 27% YoY from March 11 to March 31. According to Twitter CFO Ned Segal, a lot of factors dented the company’s ad sales, which he discussed with CNBC’s Andrew Ross Sorkin on “Squawk Box.” According Segal, the company’s ad business was dented by cancelations and delayed events amid COVID-19. He also said that “toward the end of March, it saw a greater decline in ad spending in the U.S. compared to Asia.” Segal also said that “as the economy in Asia began to reopen, it’s seen a lessened impact in the region in terms of ad spending.”

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While Twitter’s ad revenues declined, the company’s monetizable DAUs (daily active users) witnessed the strongest growth ever in the quarter, as stated by Twitter CEO Jack Dorsey. The monetizable DAUs are the daily users who are shown ads on the platform. Twitter’s average monetizable DAUs were 166 million in the quarter, which was higher than the analysts’ estimates of 164 million. The monetizable DAUs rose around 24% YoY from 134 million in the same quarter last year and by 9.2% higher than the previous quarter.

However, Twitter’s monetizable DAUs were lower than Snap (NYSE:SNAP) and Facebook’s total DAUs. On April 21, Snap reported DAUs of 229 million in the first quarter. Facebook had 1.73 billion daily active users in the first quarter.

Twitter’s outlook

Amid a lack of visibility due to COVID-19, Twitter didn’t provide the second-quarter guidance. Earlier, the company also suspended its fiscal guidance. Meanwhile, the company’s plans to build a new data center might get delayed. The global economy has stalled due to pressure amid COVID-19, which might impact the company’s capital spending plans for 2020.

The company expects to complete its ad-server rebuild by the end of the second quarter. The company will also focus on the MAP (Mobile Application Promotion) product to generate revenues. Notably, Twitter’s MAP product had a negative impact on its Q3 earnings.

Analysts expect Twitter’s revenue to decline by 17.04% YoY in the second quarter and by 5.91% YoY in 2020. They expect the revenues to recover in 2021 and grow by 21.4% YoY. For the second quarter, analysts expect Twitter’s earnings to fall by over 96% YoY. They expect a YoY earnings decline of 79.9% YoY in 2020. The company expects YoY earnings growth of 57.9% in 2021.

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