The Gist

Despite beating earnings estimates on their most recent quarterly report, Twitter (NYSE:$TWTR) shares fell heavily during Thursday’s trading session. Stocks currently sit at about $16.84, at market close, losing about 14.13% from its opening price.

Why Does it Matter?

For Twitter’s second quarter results, analysts had estimated adjusted Earnings Per Share (EPS) of $0.05 on revenues of $537 million. With actual adjusted EPS and revenue coming out to $0.12 and $574 million respectively, both metrics exceeded analyst expectations.

So why did shares fall so dramatically? Notably, even though Twitter beat analyst estimates for the second quarter, Twitter’s revenue is still down 5% year-over-year, bringing to light a more holistic view on a struggling business model. Additionally, the company’s GAAP loss also grew 9% since last year to $116 million. This was mostly driven by a $55 million charge related to its previous investment in SoundCloud.

However, the platform’s user metrics highlights the most concerning aspect of Twitter’s second-quarter earnings report yet. Although the platform experienced a 5% year-over-year increase in active users, growth from last quarter was non existent. This implies that growth fueled by President Trump’s antics has slowed down, and have exposed it more as a one-time stimulus. If this persists, confidence in Twitter’s ability to meaningfully grow their user base will be thrown into question.

What Has Been Said

Along with second quarter earnings results, management has also provided guidance for what to expect in the future, expressing a lack of confidence in revenue growth for the latter half of the year.

However, the reason provided could also imply greater efficiency in the future, as Twitter has attributed revenue headwinds to de-emphasize inefficient revenue products. This is a temporary product re-structuring that will see Twitter direct more focus on their best-performing revenue streams, as well as experiment with newer initiatives. Management expects the product shuffling to contribute $75 million in headwinds.

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