Twitter’s pivotal quarterly results are all about user growth

Flight or blight?
Flight or blight?
Image: AP Photo/Lionel Cironneau
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Twitter has proven many doubters wrong in its tumultuous history, but recent concerns about its growth and market size potential could get louder this afternoon (US time) when the social media firm reports its second-quarter results.

Twitter, whose stock started trading publicly last November, is at a pivotal point: It has just gone through its first big management shake-up as a public company, with its chief operating officer leaving the company and a new finance chief, highly regarded ex-banker Anthony Noto, coming on board.

Twitter has also shut down skeptics who never thought it would amount to a real business by generating hundreds of millions of dollars in advertising revenue, much of it coming from mobile devices, where other media companies have struggled. It is even growing its mobile advertising capabilities beyond Twitter itself. Wall Street’s consensus is that Twitter will report second-quarter sales of about $283 million—double the same period last year.

But Twitter has lagged in one key metric—adding active users. Twitter (the product) seems simple yet powerful enough that it should be useful to everyone with a mobile phone. Yet it remains a fraction of Facebook’s size, with slowing active user growth. And that’s what investors will pay the most attention to today, and what could send Twitter shares up or down. (Twitter was reportedly considering releasing new and different measurements of its size for today’s report, but Recode’s Peter Kafka reports that it will not.)

Specifically, analysts are looking for Twitter to report second-quarter monthly active users (MAUs) somewhere around 265 million, representing year-on-year growth in the low-20% range. That’s a significant deceleration from this time last year, when Twitter was still growing its user base by roughly 40%.

Then there’s the issue of the World Cup, which likely played a key role in Twitter’s usage and growth last quarter. Skeptics may say that the world’s largest sporting event only happens once every four years, so it doesn’t really count if that’s what propelled Twitter. The counterargument: One of Twitter’s best uses is for following large, global events, so of course it’s going to lean on the World Cup for growth—isn’t that the point?

With that in mind, any remarkable show of momentum—either strength or weakness—during today’s report could set the tone for Twitter’s investor story for a while.

If its numbers are outstanding—say, more than 275 million monthly active users—Twitter will look good, and the stock could soar. If they’re disappointing on top of all the other changes going on, the uncertainty could drive a sell-off in Twitter shares. And Twitter’s streak here so far isn’t good: Shares opened down 12% and 23% the mornings after its two prior earnings calls.