NFL streaming win doesn't stem Twitter share drop after Q1 revenue miss

The investor rebellion against online video and social media stocks appears to be continuing after Twitter's shares fell 13 percent in after-hours trading Tuesday following a first-quarter earnings report that missed analyst estimates by over $13 million. Revenues reached just $595 million, 36 percent higher than a year ago but much lower than its high point of $641 million in the fourth quarter of 2015.

The decline in revenue was blamed on lower spending from large advertising brands which promote their products on the social media site. "Revenue came in at the low end of our guidance range because brand marketers did not increase spend as quickly as expected in the first quarter," said Twitter in its quarterly letter to shareholders. Part of that lower spending was due to advertisers switching to "higher performing video units from traditional Promoted Tweets," the company added, saying that video spend increased quarter-over-quarter.

Twitter did beat estimates when it came to earnings per share, reaching 15 cents on non-GAAP net income of $102.7 million. It also narrowed its overall losses to just $79.7 million, much better than its $162.4 million loss a year ago, but the upbeat results failed to make investors happy.

Netflix (NASDAQ: NFLX) also saw backlash following its first-quarter report last week, despite posting solid subscriber growth numbers -- an indication that investors are either losing faith in online media's growth potential, or are simply eyeing overall performance with a more critical eye.

Twitter has focused on investing in products to keep users engaged and spending more time on the site -- particularly video offerings such as Periscope and, most recently, its eyebrow-raising deal with the National Football League to stream 10 of its Thursday night games live to Twitter users. But that streaming coup apparently failed to attract more premium advertisers, the social media site's main source of revenue -- at least not yet.

That could change as the fall football season approaches. "We're hearing from marketers that growth in overall video spend on Twitter will be driven by tapping into incremental online video budgets, which in turn requires us to provide a set of additional features including more detailed demographic targeting and verification, and reach and frequency planning and purchasing. These features are in development and will launch in the fall as we bring our new NFL/Thursday Night Football ad opportunity to market," the company said.

CEO Jack Dorsey said on the company's earnings call that other sports organizations are showing interest in live streaming their games on Twitter as well. "As soon as we announced that deal, almost every league in the world contacted us, because they want to provide an even better experience for their fans," he said.

Periscope is also a key part of the Twitter experience: the company said that users have created over 200 million live broadcasts so far, and have watched more than 110 years' worth of live video daily on iOS and Android devices combined.

However, average monthly active users on Twitter stayed relatively flat, growing just 4 percent internationally year over year to 310 million, and not growing at all in the U.S., which maintains about 65 million monthly active users.

For the second quarter, Twitter stayed conservative in its estimates, forecasting revenues between $595 and $610 million. The company plans to lay out $300 to $425 million in capex throughout 2016. It declined to provide an estimate on monthly active users for the upcoming quarter.

Facebook (NASDAQ: FB), Twitter's closest social media competitor, will announce its results on Wednesday evening after the market closes.

For more:
- see this WSJ article
- see the shareholder letter (PDF)
- see this Seeking Alpha transcript

Related articles:
International woes: Disney on ice in China, Netflix's global push leaves analysts cold
As Amazon challenges with new monthly subscription tier, Netflix's pace disappoints some investors
Twitter nabs NFL streaming contract, while Yahoo Sports sticks to game-a-day strategy with MLB