As Twitter Inc.'s (TWTR) - Get Report  shares surged three months ago in response to a Q1 beat and better-than-expected user growth, bulls argued the company's product changes were fueling a turnaround, while bears countered that much of the improvement in Twitter's numbers stemmed from a "Trump bump" that would prove short-lived.

On the surface, Twitter's Q2 report provides good talking points for both bulls and bears. But the bad news in the report is arguably more important, since it points to trends in the company's U.S. business that could quickly neutralize positive developments elsewhere.

Twitter reported Q2 revenue of $573.9 million (down 5% annually, but up 5% sequentially) and adjusted EPS of $0.08, beating consensus analyst estimates of $537 million and $0.05. With Twitter no longer providing quarterly sales or EPS guidance, analysts have been conservative with their forecasting.

Regardless, the Q2 beat is being overshadowed by the fact Twitter reported averaging only 328 million monthly active users (MAUs) -- flat sequentially, up 5% annually and below a 331 million consensus. Also: Twitter guided for Q3 adjusted EBITDA of $130 million to $150 million, below a $146 million consensus at the midpoint.

Shares are down 13.6% as of the time of this article to $16.96. They're giving back most of their 2017 gains, and are now down 34% from their $26 2013 IPO price. That makes for quite the contrast with Facebook Inc. (FB) - Get Report , which is surging to new highs after soundly beating Q2 estimates and reporting its MAUs grew 4% sequentially and 17% annually to 2.01 billion.

First the good news for Twitter: Though down 1% annually, the company's international ad sales grew 16% sequentially to $220 million. Better international ad execution, and maybe somewhat better ad targeting -- CEO Jack Dorsey mentioned in the shareholder letter that ad engagement rates have improved -- seem to be helping. With 79% of Twitter's MAUs residing outside the U.S., a pickup in international ad sales (now 45% of total ad sales) was arguably overdue, but is still a welcome sight.

Twitter also benefited from a 26% increase in "data licensing & other" revenue to $85 million, an improvement from Q1's 17% growth. Dorsey claims Twitter landed "a significant number" of new enterprise licensing deals in Q2, aided by revamped product-tiering and channel sales strategies. While Twitter may struggle to create a quality consumer experience for its content, there's little doubt that many companies see a lot of business value in mining it.

However, Twitter's relatively mature U.S. ad business, which accounts for 55% of its ad revenue and 47% of total revenue, saw revenue drop 5% sequentially and 14% annually to $269 million. Facebook, by comparison, saw its North American ad sales rise 16% sequentially and 44% annually to $4.45 billion.

Clearly, Twitter remains an afterthought in the online spending plans of many top-tier U.S. advertisers and agencies relative to Facebook and Alphabet Inc./Google (GOOGL) - Get Report . Regarding social spending in particular, Facebook's tremendous scale and demographic reach, unmatched targeting data, sky-high engagement rates and extensive array of ad products present major problems for both Twitter and Snap Inc. (SNAP) - Get Report .

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It also, of course, doesn't help Twitter's cause that its domestic user base is declining. After rising by 3 million sequentially in Q1 -- interest in President Trump's well-publicized tweeting activities seem to have helped -- U.S. MAUs fell by 2 million sequentially in Q2 to 68 million. That offset a slight increase in in international MAUs to 260 million.

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COO Anthony Noto tried to put a positive spin on user growth trends on the earnings call. He observed daily active users (DAUs) rose a relatively healthy 12% annually in Q2 -- Twitter doesn't share sequential growth or provide a specific DAU count -- and insisted the company saw "positive contributions to MAU growth from product improvements in Q2 were offset by lower seasonal benefits and other factors." On the flip side, he admitted that in spite of recent DAU growth, Twitter's ratio of DAUs to MAUs "hasn't changed meaningfully or substantially one way or the other over the last couple years."

Either way, it's much harder to rationalize flat sequential MAU growth and a decline in the crucial U.S. market when you have just 328 million MAUs rather than over a billion (the way that three different Facebook apps do). All of that suggests that recent product changes, such as an expanded algorithmic Timeline view, the creation of an Explore tab that pairs search tools with the Moments feature, new attempts to crack down on abuse and a flurry of professional live video deals have done little to grow Twitter's mass appeal.

I and many others have spent much time in the past going over the various issues that have made Twitter -- for all its power as a communications and entertainment platform -- a bewildering, frustrating and/or depressing experience for the average user (read: not celebrities, media personalities or politicians). Some progress has been made towards dealing with certain issues, such as abuse and challenges in finding interesting content that was tweeted while on wasn't logged in.

But many other issues, such as the constraining nature of the 140-character limit in its current form, the amount of low-quality promotional content users see in their Timelines, the challenges users face in both discovering interesting accounts and having their own material noticed and the failure to add basic features such as the ability to edit tweets or attach longer pieces of text, still loom large. Moreover, the execution on some of the changes that Twitter has implemented, such as the algorithmic Timeline view and an overhauled replies feature, could definitely be better.

And Twitter's Q2 numbers make it clear that the company's huge product issues are still exacting a heavy toll. Especially in its most important market.