Two of Silicon Valley’s biggest names took a beating yesterday. Apple (NASDAQ:AAPL) and Twitter (NYSE:TWTR) share prices fell 8% and 14% respectively in after-hours trading, following the release of their latest quarterly earnings figures.
Although the company met its own guidance it didn’t meet Wall St’s higher expectations. For the first time in 13 years, Apple sales actually fell. But perhaps Twitter is the stock that investors should really be focusing on. Its results were far worse than Apple’s.
Twitter added only 5 million monthly active users (MAUs) in the quarter, taking total active users to 310 million. Compared with Facebook (NASDAQ:FB), which has around 1.5 billion MAU’s and another 1.4 billion spread over its WhatsApp and Instagram platforms, Twitter remains a niche.
Even more damning is that it recorded no active user growth in the USA, where 65% of its advertising revenue comes from.
As growth in monthly active users (MAUs) declines, so has Twitter’s ability to generate revenue. Whilst ad engagements - the amount of people taking action by clicking on an ad - increased 208% since the first quarter in 2015, the amount Twitter charges its advertisers fell by 56%.
So far, the only profit that Twitter has reported is its ‘adjusted’ non-GAAP earnings figure where it adds back stock-based compensation amongst other expenses relating to acquisitions. There’s very little to indicate Twitter will become genuinely profitable any time soon.
Not making any money isn’t a problem for Apple.
Even though total iPhones sold in the quarter fell for the first time ever, Apple still moved more than 51 million units and generated a net profit of over $10 billion in the three months to March 2016. As a comparison Commonwealth Bank of Australia (ASX:CBA) — Australia’s largest company by market cap — made $9 billion in all of 2015.
Even more impressive it the company’s cash balance of around AUD$300 billion, which would allow it to purchase 143 companies that make up the ASX 200 without taking on a cent of debt.
Whilst the results for Apple weren’t great, it came at a time where it was in-between new products and overall smartphone growth is slowing. Still, the company takes a huge share of the entire industry’s profitability, has high levels of customer satisfaction and the capacity to develop new products and services whilst upgrading and improving existing ones.
As for Twitter, it has tried everything it can think of, including changing CEO's, and the situation only appears to be getting worse. Despite the headlines, Apple has a clear and highly profitable business model while Twitter is fumbling around trying to find one.
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