Argus Cuts Twitter To Hold, Warns Of Slowing Revenue

Investors have been focusing on growth in monthly active users [MAUs] at Twitter Inc TWTR, while the quarterly results reflect a slowdown in revenue growth. Argus’ Jim Kelleher downgraded the rating for the company from Buy to Hold, saying that the results and guidance reflect slowing revenue momentum.

Twitter reported its 1Q16 revenue at $594 million, up 36 percent y/y. Although the company’s growth is ahead of expectations as well as that of most peers, there has been a sequential slowdown in revenue growth, analyst Jim Kelleher said. He added that revenue growth declined despite MAU growth coming in ahead of expectations.

Kelleher further pointed out that although Twitter has reported 1Q non-GAAP earnings at $0.15 per diluted share, its EPS growth lagged sales growth.

MAU Growth In Perspective

The analyst pointed out that MAU growth had been an issue for Twitter over the past year. He wrote, “The company broke a two-quarter dry spell with 1% sequential growth in 1Q16, to 310 million MAUs.”

While Twitter’s MAU growth was merely 3 percent over the past year, Facebook Inc FB has been able to achieve 3 percent MAU growth on a sequential basis, with annual MAU growth of 14 percent in 2015. “We are concerned that Twitter may be ceding potential and active users to sites such as Snapchat, which, with its photo- and video-based core model, may be better aligned with the use of smartphones in the “selfie” era,” Kelleher wrote.