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Twitter Investors Brace for Crummy Q2 Earnings

Twitter reports earnings on Tuesday afternoon.

Anthony Quintano for Re/code

Twitter will report Q2 earnings on Tuesday afternoon, a chance to rebound after a disastrous earnings report last quarter eroded more than 25 percent of its market cap overnight. Its stock price is still creeping toward an all-time low, and it’s safe to say that if any company could use a bit of a pick-me-up right now, it’s probably Twitter. Unfortunately, that boost doesn’t look like it’s going to happen.

The key hangup appears to be the same thing that has plagued Twitter for the past two years: User growth. Analysts anticipate a pretty significant growth slowdown — Twitter suggested as much during its last earnings call. Cantor Fitzgerald’s Youssef Squali expects Twitter will add five million new users this quarter, 13 percent growth over last year; it added 14 million new users last quarter for 18 percent growth.

That prediction looks downright cheerful compared to the one from SunTrust’s Robert Peck. He doesn’t forecast any growth at all to Twitter’s core user base.

RBC Captal’s Mark Mahaney also wrote that he sees “modest potential for disappointment” around Twitter’s guidance for Q3. That’s Wall Street speak for we wouldn’t be surprised if things are a little rocky later this year, too.

Those low expectations could work in Twitter’s favor if it can showcase even moderate growth. Wall Street set a pretty low bar despite the fact that Twitter has built a number of new products over the past six months to help bring on new users. One of those products, called Project Lightning, could give more people a reason to visit Twitter even if they don’t have an account. But it hasn’t rolled out yet, and doesn’t appear to be coming until the fall.

Typically, Twitter couples its growth issues with solid financial numbers. It may not have the user base Wall Street wants, but it makes pretty good money off the users it does have. Analysts expect that trend to continue.

Wall Street expects profits of four cents per share on roughly $481 million in revenue for the quarter. That’s more than 54 percent growth from one year ago. Last quarter was Twitter’s first major disappointment from a revenue standpoint, and it blamed the miss on a specific, new type of ad that it was testing. Those ads, called direct response ads, have now been rolled out more broadly, and it will be worth listening in to see if Twitter has a better idea of how those ads will perform moving forward.

The call on Tuesday will be Twitter’s first without former CEO Dick Costolo, who stepped down in early June, and its first with co-founder and interim CEO Jack Dorsey, who has started two companies but never run one while it was public. Twitter is still in the midst of a CEO search, and while the popular opinion is that current head of revenue Adam Bain will ultimately take the job, Dorsey still hasn’t come out and officially removed himself from the running. (My colleague Jason Del Rey believes now would be a good time for him to do that.)

You can expect analysts to ask for an update on the search — and Dorsey’s position as a candidate — during the call on Tuesday. Whether or not Twitter will have an answer is another question.

Twitter stock was down almost 3 percent Monday afternoon.

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