Twitter Earnings Preview: Engagement vs. Ad Strength
The question for Twitter heading into earnings is whether engagement on the social media app was enough to outweigh a digital advertising environment crippled by coronavirus. Wedbush analyst Michael Pachter, who has a NEUTRAL rating and 12-month price target of $30, sees upside for user growth but remains pessimistic about broader advertising trends.
“With Q2 representing a full quarter of coronavirus coverage and conversation, along with the widespread protests in the US around racial justice that began in May, we see meaningful room for upside to sequential audience growth, but ad pricing declines will likely pressure ARPU and temper revenue flow-through.”
Usage spike: Apptopia, an app intelligence company, expects Twitter to report further acceleration in monetizable DAU’s growth year over year in 2Q20. The company says that Twitter’s worldwide DAU estimates have increased by +5% year-over-year during 2Q20. This compares to 2.7% growth a year earlier. Apptopia says its DAU’s estimates are correlated with Twitter’s reported monetizable DAU’s.
The Protest Effect: Twitter usage jumped alongside a jump in civil unrest tied to George Floyd protests. The app had a record-breaking week in early June, with over 1 million installs in a single day, according to data from Sensor Tower.
Wedbush predicts Q2 net mDAU growth of 5.0 million quarter-over-quarter, but adds that the estimate could be conservative due to robust audience growth of 14 million during Q1.
Subscription service speculation: The idea of a subscription service has long been floated by speculators as a potential way for Twitter to diversify its revenue stream. That speculation picked up recently on findings that Twitter was hiring for a position to build a subscription platform. More than 84% of Twitter revenue comes from advertising, and the growth at Twitter has been less than inspiring. In the first quarter, Twitter’s revenue grew only 3%, the smallest increase in more than two years.
