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Why Twitter, Inc. Stock Was Slammed Today

By Daniel Sparks – Jul 27, 2018 at 1:41PM

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User headwinds overshadowed solid financial results.

What happened

Shares of Twitter (TWTR) took a big hit Friday, falling as much as 20%. At the time of this writing, shares are down 19.8%.

The stock's decline comes just after the company reported its second-quarter results. Though revenue was up sharply and Twitter's profit surged compared to its loss in the year-ago quarter, headwinds with user growth as the company deletes "spammy and suspicious" accounts spooked investors.

A woman drinking coffee while looking at her smartphone

Image source: Getty Images.

So what

Twitter reported second-quarter revenue of $711 million, up 24% year over year. "This strong growth reflects continued sales momentum with advertisers built around better ad relevance and improving ROI," management said in Twitter's second-quarter earnings release. The company's non-GAAP net income for the quarter was $134 million, up from $56 million in the year-ago period.

Twitter's monthly active users declined from 336 million in the first quarter of 2018 to 335 million in Q2. This sequential decline marks a stark change from the six million monthly active users Twitter added in its first quarter. 

Now what

Looking ahead, Twitter says it expects its efforts to remove fake and problem accounts to have a negative impact on user metrics again. Management expects monthly active users to decline sequentially in Q3, falling by mid-single-digit millions.

Though Twitter expects headwinds for its user count metrics, management ultimately believes improving the health of its platform is a catalyst for revenue growth. 

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.

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