Twitter reports massive user growth, but revenues fail to follow

COVID-19 has been a difficult time to many companies, and Twitter has failed to buck the trend as the contraction of online advertising dollars shrinks the spreadsheets.

Twitter is of course not alone in facing such a setback. Facebook refused to offer revenue guidance during its own earnings call in April due to the circumstances, Snap share price has declined 10% this week following its own financial results and next week we’ll find out how Google’s advertising business has fared during the period. The Interactive Advertising Bureau (IAB) suggested 69% of its members had forecast falling revenues for 2020 thanks to the digital dollar drought.

“Revenue was $683 million in Q2, down 19% year over year, reflecting moderate recovery in advertising demand relative to the last three weeks of March,” said Twitter CFO Ned Segal.

Twitter financial results for quarter ending June 30 (in thousands, USD)
Q2 2020 Year-on-year
Total revenue 683,438 (19%)
Costs and expenses 807,368 5%
Income from operations (123,930)

Income from operations during the same quarter of 2019 stood at $75.6 million in profit, demonstrating a monstrous swing in the difficult COVID-19 climate. The headline figures are not the most attractive for Twitter, but there is a glimmer of hope on the horizon.

Firstly, engagement on the platform is increasing very quickly. Monetizable Daily Active Users (mDAUs) are up 34% year-on-year, demonstrating the product is working. This is a platform the consumer is happy to engage with, explaining the 7% uplift in share price (at the time of writing) since the results were announced.

Secondly, you have to look to the future, especially the months leading up to November when US citizens will be voting for the next resident of the White House. President Donald Trump has adopted Twitter as his primary platform of communication, while challenger Joe Biden is also a loyal user. Over the coming months, we suspect these two alone would drive interest in the platform, further increasing the number of mDAUs.

We’ve said this before, just because Twitter is posting bad financial results does not mean it is a bad business. Admittedly, it only has so many lives before investors believe they are throwing good money after bad, but this should be considered a blip on the radar.

Recent financial results for Twitter (in thousands, USD)
Period Total revenue (year-on-year) mDAUs (year-on-year)
Q2 2020 683,438 (-19%) 186,000 (34%)
Q1 2020 807,637 (3%) 166,000 (24%)
Q4 2019 1,007,341 (11%) 152,000 (21%)
Q3 2019 823,717 (9%) 145,000 (17%)
Q2 2019 841,381 (18%) 139,000 (14%)
Q1 2019 786,890 (18%) 134,000 (11%)
Q4 2018 908,836 (24%) 126,000 (9%)
Q3 2018 758,111 (29%) 124,000 (9%)

After years of being a pretend digital business, Twitter has turned around its fortunes. This coincided with a new advertising platform for customers, the introduction of new features and some very substantial influencers bringing attention. As the ad server rebuilt is now complete, theoretically it should be plain sailing for the team.

The COVID-19 pandemic has clearly hit advertising revenues very hard, but there is plenty to be positive about regarding the Twitter product, platform, audience and business model. It is difficult to ignore the net loss of more than $1 billion, but as the Presidential campaign ramps over the coming months, it might be forgotten very quickly.