Twitter (TWTR) is reporting earnings after the close today and I honestly have no idea which way they are going to go.  I have not trusted Twitter since its IPO, and still don’t trust the market’s reaction to them enough to recommend a long or short position pre-earnings.  In fact, if I had to give a recommendation, I’d tell you to stay far, far away for now.

If you are still determined to make a move off of the earnings tonight, there’s one very important figure you need to watch for: monthly active user growth.  Unless there’s a crazy number, the reaction to tonight’s earnings won’t be based on revenues or earnings per share, it’ll be based on user growth.

Twitter’s monthly active user growth has been declining in a big way. As of the last time it was announced, Twitter had 241 million monthly active users.  But that’s nowhere near the 400M monthly active users its execs projected it would have by the end of 2013.  At its peak twitter had 140% growth in monthly active users, however that user growth was under 40% in the last quarter of 2013.  In contrast, Netflix gained 2.3 million new American subscribers in the 4th Quarter of 2013.  So Netflix can get that many extra users in a quarter to pay for its service, while Twitter can’t get substantially many more to sign up for a free service. 

Unless Twitter can turn that growth around soon, earnings reactions are going to continue to be ugly.

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