Twitter beats Q2 2017 estimates, MAU growth remains flat

Social media platform Twitter Inc (NYSE: TWTR) reported better than anticipated fiscal 2017 second-quarter results in the last week of July.

However, the stock has fallen by more than 10% to about $16 in the past two weeks. The flat Monthly Active Users (MAU), compared with last quarter, has turned the stock bearish.

Additionally, as explained below, there are several important facts which indicate a little possibility of recovery in the share price. Yesterday, the stock of Twitter closed at $15.95, down 0.87% or $0.14 from the prior close.

The San Francisco, California-based company reported a widened Q2 2017 GAAP net loss of $116.49 million on revenues of $574 million, compared with a GAAP net loss of $107.22 million on revenues of $602 million in Q2 2016. The Zacks revenue estimate was $536.62 million.

Twitter

Excluding stock based compensation expenses, restructuring charges, and depreciation and amortization expenses, the Q2 2017 net non-GAAP net income of $86.753 million, or $0.12 per share, was lower than $92.93 million, or $0.13 per share, in Q2 2016, but greater than $0.05 per share anticipated by the Street analysts.

A less-data intensive version of the Twitter service, christened as Twitter Lite, which consumes only 1Mb of storage was launched on April 6th . Twitter hopes to reach remote parts of the world through the service. Twitter Lite can be accessed only through a mobile based web browser. By imposing restrictions or suspending accounts, Twitter has reduced abusive posts by 25%. Still, monthly active users (MAU) do not suggest a turnaround in the performance.

Average monthly active users in the June quarter were 328 million, versus Street Account estimates of 329 million. The monthly users increased 5% on y-o-y basis. The figures were very much disappointing to traders and analysts, considering the fact that Twitter exceeded analysts expectation of MAU in the first-quarter by 9 million. Notably, Facebook reported 70 million more users than expected in the recent quarter and has more than 2 billion users.

Average daily active users (DAU) increased 12% on y-o-y basis. It is the third consecutive quarter of double-digit growth.

Advertising revenue decreased 8% to $489 million, from $535 million in the corresponding quarter of 2016. On the basis of lackluster performance, Aegis, Merrill Lynch, Barclays, and RBC have issued an ‘underperform’ or ‘sell’ rating for the stock, with a target price ranging from $13 to $17. Thus, a widened GAAP loss and flat monthly user growth is expected to keep the stock bearish in the week ahead.

As seen in the price chart, the stock has broken the support at 18.20. The next major support exists at 14.80. The RSI indicator is in the bearish zone, while the accumulation/distribution indicator is making lower highs. Thus, a depreciation in the stock price is expected.

On the basis of this analysis, we wish to buy a put option to gain from the probable downtrend in the stock of Twitter. One of the main conditions for proceeding with the trade is the availability of a strike price of about $16 and an option expiration date around August 24th.