Earnings season continued this week, with tech stocks taking center stage. Semiconductor, software, and social network stocks, in particular, had a good showing in this week's earnings releases.
Two stories that stood out from the week:
- Twitter's (NYSE:TWTR) better-than-expected top and bottom line.
- Snap's (NYSE:SNAP) decline in daily active users.
Shares of Twitter jumped on Thursday, rising about 17% after a rock-solid earnings report. Though the company did lose about 9 million monthly active users sequentially as Twitter continued to purge spammy and suspicious accounts, investors were quick to overlook this trend. After all, the company's efforts to improve the health of the conversations on its platform are one of the key drivers for the company's strong revenue and earnings-per-share growth.
Twitter's third-quarter revenue came in at $758 million, up 29% year over year and well above a consensus analyst forecast for revenue of $703 million. Adjusted earnings per share jumped 110% to $0.21, beating an average analyst estimate for $0.14. Twitter's net income was $789 million, or $106 million when adjusted to exclude a net tax benefit during the quarter from the release of a deferred tax asset valuation.
Importantly, Twitter's daily active users increased 9% year over year, even as monthly active users fell by 4 million over the same timeframe.
"This quarter's strong results prove we can prioritize the long-term health of Twitter while growing the number of people who participate in public conversation," said Twitter CEO Jack Dorsey about the results.
Third-quarter results for photo- and video-sharing social network Snap weren't as pretty. Sure, Snap's 43% year-over-year revenue growth easily exceeded Twitter's 29%. But that was a deceleration from Snap's 44% revenue growth in Q2. Twitter's revenue growth, on the other hand, accelerated from 24% growth in Q2. Making Snap's trend of decelerating revenue even more pronounced, management guided for fourth-quarter revenue to rise just 24% to 33% year over year.
But more troubling than Snap's decelerating revenue growth was its 1% sequential pullback in daily active users and its paltry 5% year-over-year growth in the key metric. Further, Snap expects its trend of declining daily active users on a sequential basis to continue in Q4. This move contrasts from Twitter's strong daily active user growth recently, despite the company's efforts to remove bad accounts.
Finally, it's worth noting that Snap continues to report meaningful losses. The company's net loss in Q3 was $325 million -- an improvement from a $443 million loss in the year-ago quarter but still significant. Even on an adjusted basis, the company lost $0.12 per share.
Unsurprisingly, Snap stock fell sharply after the results were released. Shares declined 10% on Friday, as investors considered the implications of the company's declining daily active users.