Twitter bets on live events to spur growth, take on Facebook

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Wall Street will be watching Twitter's quarterly earnings report on Tuesday for evidence the company can defy skeptics and revive user growth in a market loaded with social apps and messaging services.

Following a brutal 13-month stretch that's seen the abrupt departure of former CEO Dick Costolo and the challenged return of co-founder Jack Dorsey, Twitter is trying to reignite investor enthusiasm through a focus on new products and partnerships with big players in media and entertainment.

The company recently sealed a deal to host a live video stream of CBS News' 2016 Republican and Democratic National Convention coverage. Twitter also won the right to stream Thursday night NFL games, and earlier this month tennis fans used the social media site to watch Wimbledon.

None of these new ventures will matter if Twitter can't boost traffic. Growth in monthly active users, the metric most watched by Wall Street, has plateaued in recent quarters. For the second quarter, analysts expect a meager 2.6 percent increase in MAUs to 312 million from 304 million a year earlier, according to data obtained by FactSet.

"Twitter's biggest mistake was not innovating rapidly enough," said Josh March, CEO of social customer engagement platform Conversocial, in an interview. "User growth stalled because of this, but over the last year Jack has tried to change that around."

Sales in the quarter likely increased 21 percent to $607 million, slowing from 61 percent growth a year earlier, according to analysts polled by Thomson Reuters. Analysts expect a net loss of 17 cents a share, compared to a loss of 21 cents a year earlier.

According to Deutsche Bank analyst Ross Sandler, Twitter remains in "turnaround mode." In a note on July 13, Sandler wrote that Dorsey's changes "tend to help out user engagement and retention."

Twitter's efforts to boost engagement during the upcoming Summer Olympics in Rio de Janeiro and the NFL partnership could help revenue in the third and fourth quarters, Sandler said.

Twitter is also working to upgrade its core product — sometimes to the dismay of users — by expanding its Moments feature, allowing all Twitter users to request verified accounts and cracking down on harassment and violence online.

Still, sluggish user growth combined with management turnover and risky bets on new products has led some analysts and investors to view the company as headed for a permanent slowdown, especially if those numbers don't improve this quarter.

SunTrust Robinson Humphrey analyst Robert Peck lowered his rating on the stock to "neutral" on July 11, citing stagnant growth, lower user engagement and competition. Analyst Brian Wieser of Pivotal Research echoed that sentiment, writing in a note to investors that Twitter has "struggled in its failure to meet unnecessarily lofty expectations."

Yet, Twitter still "owns an important niche" in a diverse digital landscape, Wieser said. He kept a "buy" rating on the stock, though he cut his price target to $26 from $27.

The stock closed on Friday at $18.37, down 49 percent over the past year.

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When it comes to making money, Twitter contends with internet giants Google and Facebook. Among the major social networks, Twitter is projected to capture 7.9 percent of worldwide social-ad spending in 2016, with Facebook grabbing 67.9 percent, according to eMarketer.

"When news happens, it happens on Twitter, keeping the platform highly relevant as a real-time communications medium during news and cultural events," said Debra Aho Williamson, an analyst at eMarketer. But the company is "increasingly being overshadowed by other players, such as Instagram, Snapchat and Facebook Messenger," she said.

Live events could also turn out to be too difficult and competitive a market for Twitter.

"We believe Facebook's dominant user engagement and similar push into live video presents a very challenging competitive landscape for Twitter," Wells Fargo analyst Peter Stabler wrote in a note last week. In the coming quarters, Stabler said he expects "only modest user growth."

Twitter shares have pared some of their losses in recent months. The stock has gained 26 percent since the end of April, driven largely by news that Microsoft agreed to acquire social network LinkedIn for $26.2 billion, leading some experts to predict that Twitter could be next in line for a takeover.

Yahoo's former interim CEO Ross Levinsohn told CNBC last week, "I don't see a chance that [Twitter] is an independent company in 24 months."

Levinsohn said there are tech and media companies like Apple sitting on mountains of cash and in a position to make "immense and exciting" tie-ups with Twitter, which he called a great brand with "tremendous" global and cultural impact. Further, he said he'd like to see Dorsey focus more on a single company, rather than juggling Twitter and Square, where he's also CEO.

For now, analysts are waiting for more signs of life. According to FactSet, 65 percent of analysts following the stock recommend holding it, while 23 percent suggest buying, and 13 percent say sell.