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Why Twitter, Inc. Stock Got Crushed

By Daniel Sparks - Apr 27, 2016 at 12:09PM

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These numbers came in much lower than expected. Here's what investors need to know.

What: Twitter (TWTR 2.49%) stock fell as much as 15.5% on Wednesday following the company's first-quarter earnings release after the company reported worse-than-expected Q1 sales and Q2 guidance.

Twitter headquarters. Image source: Twitter.

So what: After market close on Tuesday, Twitter reported non-GAAP EPS and revenue of $0.15 and $595 million, respectively. While the company's non-GAAP EPS was $0.05 higher than analysts were expecting, its revenue was below a consensus forecast for $608 million. Twitter's revenue for the quarter was up 36% from the year-ago quarter, but analysts were expecting revenue growth of 39%.

Another area where Twitter missed the mark was on its guidance for revenue in Q2. The company said it expected revenue in the range of $590 to $610 million. This compares to a consensus analyst estimate for Q2 revenue of $678 million.

Management told investors on Tuesday its worse-than-expected revenue is being driven by softer demand from big brands as marketers opt for higher-quality ad products, such as video, and move away from traditional promoted tweets with email opt-ins, images, and website links.

Now what: Going forward, Twitter's guidance suggests management expects revenue growth to decelerate even more rapidly. Q2 guidance implies revenue growth in the range of 17% to 21%. Over the longer term, management hopes efforts to improve its ad products will moderate decelerating growth.

Twitter shares are down 61% in the past 12 months.

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