Two analysts have agreed the growth of Twitter's user base is slowing more than previously thought.
That puts huge pressure on CEO Dick Costolo, who has vowed to restart growth among new users of Twitter. He has ordered parts of the app be redesigned and shuffled product management to achieve that.
The problem is that for months, Wall Street has been focused on the number of Twitter's monthly active users (MAUs). Analysts see that number--255 million in Q1--as a proxy for future growth.
Twitter's stock has fluctuated wildly as a result. It's holding up around $38 today but has been as low as $30 after Twitter first reported slowing MAUs.
Business Insider previously reported that samples of data taken from Twitter by developers showed growth in monthly active users (MAUs) slowing to just over 260 million in Q2, up only 5 million (or 2 percent) from Q1.
Sterne Agee analysts Arvind Bhatia and Brett Strauser said in a note today that while "third-party data" suggests MAUs will hit 260 million, its own estimate is for MAUs to come in at 266 million, up 4 percent from the prior quarter. That's still a slowdown, because Q1 sequential growth was 6 percent:
Third-party data are suggesting sequential user growth of only around 5M Q/Q, which is much lower than expectations of 11M to 14M. We are looking for monthly active users (MAUs) to be 11M Q/Q. Specifically, we are looking for MAUs of 266M or up 4 percent sequentially from 255M at the end of 1Q and up 22 percent from 218M in the year-ago quarter. Our net user growth assumption of 11M sequentially is a slowdown compared to 14M net sequential user growth in 1Q. By geography, we expect U.S. MAUs of 60M (+5 percent sequentially, +22 percent y/y) and International MAUs of 206M (+4 percent sequentially, +22 percent y/y)
Separately, Wunderlich Securities analyst Blake Harper published a note saying he estimates MAUs will be 260-262 million:
We expect Twitter, Inc. (TWTR) to report monthly active users (MAUs) in a range of 260-262 million, which is below the consensus of 267 million. Product and marketing changes to capitalize on the World Cup provided a boost to monthly active tweeting users (MAtUs) in the month of June to 126.9 million, which implies 1.1 million MAtUs were added during the quarter. We expect engagement and monetization to continue to be improving, which should help the company post strong revenues. However, we expect buy side and sell side expectations are still too aggressive on MAU growth and the company has struggled to meaningfully grow its user base.
In response to the MAU situation, Twitter is reported to be preparing new metrics to demonstrate how people really engage with the app.
We've previously argued that Twitter is not, in fact, a mass medium for everyone and that the value of the users is more interesting than the total number of them. Twitter has told BI it will not comment on MAUs because it is in a pre-earnings quiet period.
Whatever happens, Twitter's Q2 earnings call‚ scheduled for July 29, promises to be explosive. If Twitter's MAUs beat expectations Costolo will be hailed as a genius. If MAUs come in weak, it will renew questions about the role Twitter is supposed to play in a universe where Facebook has one-third of the world's population.
There's one aspect to all of this that confuses the numbers, too. The World Cup was spread across both June and July, half in Q2 and half in Q3. It is likely that Twitter got a bump in users from the soccer tournament. So any temporary uptick in MAUs from the World Cup may disappear from Twitter's quarterly numbers by the time Q4 rolls around.
Disclosure: The author owns Twitter stock.
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