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Twitter Beats Earnings, but Sees Little to No Growth in Active Users

Twitter’s user base is either growing a lot, a little, or not at all, depending on whom you ask. That’s one of the take-aways from the company’s Q2 earnings, which Twitter released Tuesday to investors with muted expectations.

Twitter had 316 million monthly active users during Q2, which is 8 million more than in Q1, and up 45 million from the 271 million it had a year ago — which sounds good, considering that investors had grudgingly prepared themselves for 5 million or fewer new monthly active users.

However, the company arrived at that number largely due to the addition of mobile users who subscribe to updates from a select Twitter account via SMS without signing up for a Twitter account themselves. Without these “SMS fast followers,” Twitter would have had only 304 million monthly active users, compared to 302 million active users with accounts during Q1.

That differentiation matters a lot: Users who follow only certain accounts via SMS messaging aren’t using the Twitter app or website, and thus also aren’t seeing most of the company’s ad formats. In other words: These users are good on paper, but add little value to the company.

On the domestic front, excluding SMS fast followers leads to an even bleaker picture, with growth flatlined at 65 million monthly active users for Q1 and Q2.

Twitter decided to add “SMS fast followers” to the number of monthly active users for the first time, despite having had this feature for a long time. Twitter CFO Anthony Noto made the case for paying attention to SMS users during the company’s Q1 earnings call, arguing at the time that Twitter has seen a lot of its recent growth in emerging markets where mobile messaging still matters a lot more.

Investors have been particularly concerned about Twitter’s slowing growth, which is seen as one of the main reasons former Twitter CEO Dick Costolo left the company at the end of last month.

Both interim CEO Jack Dorsey and CFO Noto admitted that user growth was a problem for the company. “We are obviously not satisfied with these results,” said Noto, adding: “We have not yet reached the next cohort of users known as the mass market.” Noto went on to say that the company is looking to increase marketing and hire a CMO to better formulate its value proposition. However, he added that reaching the mass market could take “a considerable period of time.”

Twitter’s monetary results were a bit better: The company generated $502.4 million in revenue during the most recent quarter, compared to $312.2 million a year ago. The company’s net loss came in at $136.7 million, compared to $144.6 million a year ago. Twitter itself had forecast only $470 million to $485 million in revenue for the quarter, and most analysts had also expected less than $500 million.

Growing revenue may ease concerns about user growth a little bit, but it doesn’t help to solve some of Twitter’s other pressing problems. The company is still on the lookout for a new permanent CEO, and with stalling user growth and a leadership in transition, it seems to have struggle holding on to some of its key talent.

The Financial Times reported earlier Tuesday that more than 450 employees have left Twitter in the last 12 months. Two high-level developers announced their departure Tuesday: Product management VP Christian Oestlien is leaving the company for YouTube, and product director Todd Jackson is departing for Dropbox.

Tuesday’s Q2 earnings call was the first to be chaired by Dorsey, who took over the helm from Costolo on an interim basis at the beginning of the month. Dorsey said Tuesday that the company has no updates on the search for a permanent CEO, repeating that he is fully focused on the product.

It was also the first time that the company used its Periscope social live-streaming app to broadcast a video of the call. Asked about the future of the app, Dorsey said that the company has “no plans to share to monetize Periscope yet.”

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