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Will Twitter's Q2 Fall Victim To Law Of Large Numbers?

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Whether Twitter (NYSE: TWTR) falls victim to the law of large numbers is a question investors will ask Tuesday when it posts second-quarter results.

Stock in the social media company is down 40 percent year to date over concerns its user base can no longer grow at the exponential rate shown in earlier days.

In the first quarter, user growth slowed to 25 percent, to 255 million from a 30 percent growth rate a year earlier. That inevitably slowing rate caused the shares to decline, but one analyst said investors have since become more realistic.

"User growth will still be a critical metric," Wunderlich's Blake T. Harper said. "But at some point it will become more valued on its earnings and revenue as investors understand its realistic user-growth capacity."

Goldman Sachs' Heath P. Terry last week cited data from comScore suggesting user growth slowed to 17 percent in the second quarter.

Twitter apparently hopes to just change the subject.

With some creative slicing and dicing, the company will reportedly unveil up to four new numbers along with second-quarter results. The aim is to show how many people are exposed to Twitter through other webites and media, without actually signing up and using the service, according to a Wall Street Journal report.

But Cantor Fitzgerald's Youssef Squali told the Journal "with all of these social platforms," he said, "there are only two metrics that matter: how many people use it and how they use it."

Still, Wunderlich's Harper expects the company to post higher-than expected top-line growth, with advertising revenue up 110 percent.

On average, Wall Street expects Twitter to post a loss Tuesday of $0.01 per share on revenue of $283.07 million, compared with a year-earlier loss of $0.09 per share on revenue of $139.29.

Twitter closed Monday at $37.93, down 0.6 percent.

Posted-In: Blake T. Harper Goldman Sachs Heath P. Terry WunderlichAnalyst Color Earnings Previews Trading Ideas


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