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Twitter's Slowing User Growth Is Cause for Alarm

Financial results improved in the social media firm’s second-quarter, but we're lowering our fair value estimate as user growth slows, writes Morningstar analyst Rick Summer.

Although strong revenue growth marked

Monthly users grew only 0.7% sequentially to 304 million, while U.S. monthly users remained at 65 million, showing no growth. Annually, global users grew only 12%, while engagement (measured as daily users divided by monthly users) shrank from 48% to 44%. These trends are not encouraging. Advertisers have many alternative outlets to reach a larger user base on a targeted and near to real-time basis, including

Despite slowing user growth, total revenue grew 61% (to $502 million) versus 2014, paced by ad revenue (representing 90% of the mix) growing 63%. Ad revenue per monthly user came in at $1.49 for the quarter, a 45% improvement. Mobile revenue represented 88% of the total, as it has in recent quarters. Better expense management (particularly driven by research and development) resulted in an improvement in adjusted EBITDA margins from 17% to 24%, an impressive result, but generally in line with our long-term operating model.

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About the Author

Rick Summer

Strategist

Rick Summer, CFA, CPA, is a technology strategist for Morningstar, responsible for Internet and technology research. Before assuming his current position in 2014, he was a senior equity analyst. He joined Morningstar in 2005 as an equity analyst, covering software and Internet companies. He has operating experience in the wireless and software infrastructure industries and has worked as a private equity investor for UBS Global Asset Management.

Summer holds a bachelor’s degree in business administration from Emory University and a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation and is a Certified Public Accountant (CPA).

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