Twitter stock fell by 11% yesterday following disappointing Q2 2015 earnings. Although revenue was up, the lack of user growth has shaken market confidence.

Highlights:

- Q2 revenue of $502m, up 61% year-over-year (at constant currencies, revenue would have increased 68%)

- Advertising revenue totalled $452m, an increase of 63% year-over-year (71% at constant currencies)

- Mobile advertising revenue was 88% of total advertising revenue

- Data licensing and other revenue totalled $50m, an increase of 44% year-over-year

- US revenue totalled $321m, an increase of 53% year-over-year

- International revenue totalled $181m, an increase of 78% year-over-year

- Q2 GAAP net loss of $137m and non-GAAP net income of $49m

- Q2 GAAP EPS of ($0.21) and non-GAAP diluted EPS of $0.07

- Q2 adjusted EBITDA of $120m, up 122% year-over-year, and above the previously forecast range of $97m to $102m, representing an adjusted EBITDA margin of 24%

“Our Q2 results show good progress in monetisation, but we are not satisfied with our growth in audience,” said Jack Dorsey, interim CEO of Twitter. “In order to realise Twitter’s full potential, we must improve in three key areas: ensure more disciplined execution, simplify our service to deliver Twitter's value faster, and better communicate that value.”

Advertising Products

During Q2 Twitter launched objective-based campaigns, reports and pricing to all advertisers globally in order to drive higher ROI. Twitter also introduced installed application category targeting, a new feature that enables app advertisers to reach mobile users based on the categories of apps they have installed on their device. Twitter also rolled out Audience Insights, a tool that provides advertisers with aggregate information such as user demographics, interests, and purchasing behaviour so they can better understand their key audiences.

Twitter’s ad product developments have been well received by marketers, but have not been revolutionary. Instead, Twitter has focussed on providing marketers with the data required to effectively measure performance; a fundamental pillar required for continued channel investment and a wise move on Twitter’s part. In the second half of the year, we hope to see more innovative, creative advertising solutions from Twitter that allow marketers to go beyond basic targeting and messaging and really capture the imagination of the user.

Partnerships

Twitter announced a partnership with Google’s DoubleClick platform to improve advertising performance measurement and attribution for Twitter direct response marketers. As part of the partnership, Twitter will also make its inventory available through the DoubleClick Bid Manager platform. Twitter also launched its Official Partner Program, a new initiative combining industry-leading product and service partners that help businesses achieve better results on Twitter and beyond.

Acquired Companies

Twitter acquired TellApart, a leading marketing technology company providing retailers and e-commerce advertisers with unique cross-device retargeting capabilities through dynamic product ads and email marketing, and Whetlab, a start-up focused on machine learning and artificial intelligence.

Twitter’s ad product developments, partnerships and acquisitions point to a strategic desire to tap into ‘direct response’ budgets which are considerably larger than ‘brand’ budgets. However, without growing its user base, Twitter will struggle to significantly grow revenue from advertising.

Monthly Active Users

Average Monthly Active Users (MAUs) were 316 million for the second quarter, up 15% year-over-year, and compared to 308 million in the previous quarter.

Disappointing compared to Facebook’s claim of 1.4bn users. Mobile MAUs represented approximately 80% of total MAUs.

Twitter Finance Chief, Anthony Noto predicts organic growth will continue to be slow, he said: "we do not expect to see sustained meaningful growth in MAU until we start to reach the mass market. We expect that will take a considerable amount of time."

In order to compete with Facebook, Twitter needs to adapt its product to appeal to the mass market. During Q2 Twitter launched a new autoplay feature for native videos, Vines and GIFs, hoping to capitalise on consumers’ ever-growing love of online videos. However, the feature did not go down well with users and many prominent tech commentators providing high-profile how-to-guides to turn off autoplay.

Developers

Twitter’s mobile developer conference, Flock, continued its world tour with events in Asia Pacific and Latin America. In addition, Twitter announced a standalone Digits kit and introduced open sourcing for both Fabric and Digits kits on Android.

After Hours: 32.41 -4.15 (-11.35%)

Rubicon Stock Soars

Rubicon also announced Q2 2015 earnings yesterday reporting strong growth amidst the acquisition of Chango. Strong growth in revenue and a continued grip on market innovation saw Rubicon stock increase by 17%.

Highlights:

- Managed revenue increased by 48% year-over-year

- Quarterly revenue (GAAC) reached $53m

- Mobile managed revenue now makes up 22% of total managed revenue

- RTB accounted for 75% of revenue

Speaking on last night’s earnings call, Frank Addante, Chief Executive Officer, Founder and Chief Product Architect said: “considering our three participants in the advertising market place, the buyer, the seller and the consumer, although a technology platform has advanced industry growth by leading automation in buying and selling of advertising, the advertiser’s relationship with consumers is not really as strong as it could be. Rubicon Project has the opportunity to further leverage automation to reinvent advertising, bringing the consumer to the centre of our focus. Our goal is to redefine the relationship between advertisers and consumers.”

Wearable technology and connected devices will fundamentally change the consumer landscape and it seems Rubicon are wise to that and plan to guide advertisers into this new era with a new generation of ad tech.

After Hours: 18.03 +2.62 (17.00%)