Twitter Reports Strong Second Quarter Earnings as CEO Search Continues

Jack Dorsey - S 2015
Esten Hurtle/Courtesy of Twitter

Jack Dorsey - S 2015

The company reported revenue of $502 million but average monthly active users remained stagnant.

Twitter outperformed during the second quarter. The San Francisco-based company reported on Tuesday adjusted earnings of 7 cents per share on revenue of $502 million, a 61 percent increase from the same period last year.  

Revenue came in well above the $470 million to $485 million range that Twitter provided as guidance and beat analysts' expectations. Wall Street predicted that Twitter would report adjusted earnings of 4 cents per share on revenue of $481 million. 

But Twitter has a user growth problem. The company reported that average monthly active users were up 15 percent year-over-year to 316 million. That represents only 14 million new MAUs since the end of the first quarter. Most of the sequential growth, about 12 million, comes from SMS fast followers, a metric that Twitter has recently introduced to break out people who receive Twitter updates via text message without going through the normal sign-up process.

Twitter is coming off a poor performance in the first quarter of the year, when revenue growth fell short of analysts' expectations and sent the social media company's shares down nearly 20 percent. 

Wall Street is watching the 9-year-old company closely as it conducts a search for a new CEO, following the departure of Dick Costolo at the beginning of July. Twitter co-founder and Square CEO Jack Dorsey was named interim CEO while the company searches for a replacement for Costolo, who remains on the board. Dorsey's name has been thrown out as a possible full-time CEO candidate, as has that of Adam Bain, president of global revenue. If 38-year-old Dorsey wants the CEO job, today's conference call with investors, which will be live-streamed on Twitter-owned Periscope, just might be his best audition, though he would need to resign from his full-time job running Square to throw his hat in the Twitter CEO ring.  

Twitter stock closed up 5 percent to $36.54 for the day. The solid second quarter performance sent the stock up more than 5 percent during after-hours trading on the Nasdaq, but a sobering earnings call pushed it down more than 8 percent.

Dorsey started the call by acknowledging that while revenue was strong during the second quarter, new products such as the logged-out experience had no "meaningful impact at growing our audience. It's unacceptable and we're not happy about it." 

He then outlined his three goals for Twitter: disciplined execution, a simplified service to deliver Twitter's value to consumers faster, and better communication of that value. "You should expect Twitter to be as easy as looking out your window to see what's happening," he continued, adding that when done right, Twitter will be the first thing that people look at when they wake up in the morning. 

Some of the ways that Dorsey and Twitter are reimagining the product include a move away from the website's current reverse chronological timeline. The company has already experimented with this through the introduction of While You Were Away, which surfaces relevant tweets to users that were posted when they weren't logged into the site. Twitter is also currently testing a product called Project Lightning, which will offer up human-curated Tweets and rich media based around specific events or topics. It is expected to launch later this year. Explained Dorsey: "Our goal is to show more meaningful tweets and faster."