Technology Twitter, Inc. (TWTR): Revenue Declines Continue

Twitter, Inc. (TWTR): Revenue Declines Continue

Published By News Desk at July 26, 2017 11:27 am Cantor Fitzgerald Maintains Neutral on Competition/Product Re-alignment

Cantor maintains Neutral rating and $16 PT due to what Cantor believes will be muted 2Q17 results, reflecting continued revenue declines (-10.9% Y/Y) from product re-alignment and fierce competition. Although the company reported DAU acceleration in each of the past four quarters, and MAUs had a surprise bump in 1Q17, it remains to be seen whether management can maintain this sequential user growth, improve engagement on the platform (beyond a couple of minutes per day), and convince marketers that Twitter remains a relevant and effective part of their ad budget. Competition from Facebook, Snap and other social platforms, and product-realignment and declines in traditional promoted Tweets are all headwinds to revenue growth that Cantor expects to persist through 2017.

For 2Q17, Cantor estimates that revenue decreased 10.9% Y/Y to $536.1M (vs. -7.8% in 1Q17) and EBITDA declined 32.8% Y/Y to $117.3M (21.9% margin), compared with the FactSet cons. of $537M and $125M, respectively. Management guided to EBITDA of $95-115M (21-21.5% margin), which implies revenue of $452.4-534.9M. MAUs are expected to increase by 3M sequentially (vs. the surprise bump of +9M in 1Q17) to 331M ending MAUs (+5.6% Y/Y).

comScore traffic data mixed. U.S. unique visitors/viewers increased 2.6% Q/ Q to 102.2M, on average, in 2Q17 (+8.4% M/M to 109.5M in June 2017); however, time spent decreased 11.2% Q/Q to 16.6B minutes, according to June comScore multi-platform data. That said, comScore data haven't been a reliable leading indicator for Twitter's user/engagement growth in recent quarters, with 1Q17 results highlighting the fourth consecutive quarter of Y/Y acceleration in reported DAUs (+14% Y/Y).

Monetization declines continue to drive top line. Cantor is modeling for 2Q17 ad revenue to decrease 14.2% Y/Y to $459.2M (vs. -10.7% in 1Q17), with ad revenue per MAU (monetization) down 18.6% Y/Y to $1.39 (vs. -15.6% in 1Q17). Given management's commentary about revenue growth lagging audience growth meaningfully throughout 2017, and continued declines in traditional promoted Tweets, Cantor does not expect this negative trend to inflect anytime soon.

Update on live video streaming efforts. In 1Q17, Twitter had 800+ hours of live premium video across more than 450 events, reaching 45M unique viewers (up from 600 hours/~400 events/31M uniques in 4Q16). Although live video should be an increasingly important part of Twitter's business going forward (the company announced 14 new/expanded content deals at its NewFronts presentation in early May), continued declines in traditional promoted Tweets and DR ads will likely more-than offset these efforts for the rest of 2017.