Twitter Likely Won't Be the Only One Reporting Weaker Revenue but Strong User Growth for Q1

Many other ad-supported internet companies will also probably report the same dynamic. Subscription businesses are often in better shape, however.
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As Twitter’s  (TWTR) - Get Report Monday pre-announcement drives home, it’s both the best of times and the worst of times for many ad-supported Internet companies.

Twitter is up about 3% in Tuesday trading (trailing the Nasdaq’s 7% gain) after the company said it both expects its revenue to be down slightly on an annual basis in Q1, and that its monetizable daily active users (mDAUs = DAUs who can see ads) were thus far up 8% sequentially and 24% annually to an average of 164 million in Q1.

By comparison, Twitter guided on Feb. 6 for Q1 revenue of $825 million to $885 million, which at its midpoint implies 9% growth. And its mDAU consensus going into Monday was at 158 million.

It’s not hard to figure out why Twitter’s revenue and usage are trending in opposite directions. As tens of millions of people remain stuck at home thanks to the COVID-19 pandemic, they’re spending a lot more time online. And that definitely covers websites and platforms that help people follow COVID-19 news.

But on the flip side, legions of businesses are clearly cutting -- if not eliminating -- their ad spend for the time being. While certain verticals, such as small businesses and travel/hospitality firms, might be seeing especially big ad spending declines, the trend is bound to be broad-based at a time when consumer and business spending on many types of goods and services is nosediving.

As a result, Twitter’s Q1 outlook is likely a sign of what other consumer Internet firms that depend heavily on free, ad-supported services, such as Alphabet  (GOOGL) - Get Report, Facebook  (FB) - Get Report and Snap  (SNAP) - Get Report, share during the April/May earnings season.

The situation looks a little different for subscription-based digital services, at least provided that a service either helps keep homebound consumers entertained, or provides news and information that consumers and/or businesses deem to be valuable at a time like this.

Netflix  (NFLX) - Get Report appears to be a good case in point. The streaming giant’s shares shot higher on Monday after Baird upgraded shares to Outperform, while reporting that its latest quarterly survey indicated that Netflix has seen strong Q1 subscriber growth in the U.S. and elsewhere.

Disney’s  (DIS) - Get Report Disney+ service also appears to be getting a boost. Streaming analytics firm Antenna reports its data indicates Disney+ sign-ups more than tripled from March 14 to March 16 relative to the same period a week prior.

Other beneficiaries include game-subscription platforms and subscription-based news websites. Last week, Nvidia  (NVDA) - Get Report reported that it has sold out of Founders Memberships for its GeForce Now cloud gaming service, which came out of beta in early February, and indicated that North American memberships would sell out soon.

And this week, Piano, provider of a platform for managing digital news and magazine subscription businesses, reported that it saw a 63% increase in U.S. digital subscription sign-ups last week relative to the year-ago period.

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