Twitter Earnings Preview Q3 2014

  • Twitter is expected to deliver strong revenue growth and user engagement.
  • User growth will be the metric to watch out for.
  • Twitter valuations make it a risky bet; Facebook is relatively more attractive.

Twitter Earnings Preview Q3 2014

Twitter (NYSE:TWTR) is scheduled to report its Q3 2014 earnings on 27 October. Twitter reported substantial revenue addition in Q2, earlier this year. In its upcoming earnings release, the company is expected to continue its streak of exceptional revenue growth. Further, we expect the micro blogging site to sustain, or improve upon, its previously reported user engagement levels. However, Twitter valuations are expensive and seem to incorporate a lot of expectations, including that of strong user growth. We see Twitter as a risky investment, and a slight disappointment on any front could trigger a correction at these valuations.

Twitter Earnings Estimates & Twitter Guidance for Q3 2014

Revenue ($ million)





Revenue ($ million)

Adjusted EBITDA




Twitter’s revenue guidance of $330-$340 million represents a 96% - 102% jump in revenue over Q3 2013. Twitter’s revenue growth has been higher than those levels so far. Analysts estimate Twitter’s revenue to grow at 108% to touch $351 million.

Twitter User Engagement

Twitter’s user engagement metrics rebounded for a second quarter on the trot after hitting a trough in Q4 2013.

Twitter User Engagement

Heavy user activity pertaining to the FIFA World Cup was partly the reason for the spike in Q2. We expect user engagement to remain at elevated levels given that various records, like Tweets per minute, were broken in Q3 (July 2014). Our Q2 Twitter earnings has a more detailed account of the factors that could drive engagement levels in Q3 2014.

Twitter Revenue Growth

In Q2 2014, Twitter delivered an exceptional revenue growth of 124% YoY, its fastest growth in over a year. Twitter’s monetization metrics have shown a rising trend since its listing. With higher engagement levels, its monetization rates could continue to trend higher in Q3, and the quarters to come. The company’s much anticipated foray into e-commerce is another opportunity that could aid Twitter’s revenue growth.

Twitter User Growth

At the end of Q2 2014, Twitter had a user base of 271 million Monthly Active Users (MAUs). The micro blogging site added about 16 million MAUs during the quarter, its highest user addition in the preceding twelve months. Concerns over user growth and scalability have surfaced time and again over Twitter’s life as a publicly listed company. However, as we had detailed in one of our previous posts, Twitter’s user growth is not as good as it seems.

As per Twitter’s earnings presentation last quarter, about 11%, approximately 30 million of Twitter’s users solely used third party apps to access Twitter. This brings down the number of users to whom Twitter can serve ads on its site. While that means that Twitter’s Timeline Views Per MAU and revenue per user are actually higher than they seem to be, the site’s effective user base comes down to about 241 million MAUs. A clearer understanding of the trend will emerge if Twitter releases a comparable number again this quarter.

Twitter Valuations

At its current stock price of $50.6 a share, Twitter trades at a Price to Sales ratio of 33. Twitter’s current valuations are very expensive when compared to peers like Facebook. Twitter hasn’t made any profits so far, and based on its FY 2014 guidance, it isn’t likely to make any this year.

Twitter’s revenue growth is exceptional and the site is doing a fair bit to improve user engagement on the platform. However, it appears that too much is riding on revenue growth alone. In the social media space, Facebook (NASDAQ:FB) comes across as the better option of the two.

To start with, at a price to sales ratio of 20.5, Facebook trades at far more attractive valuations. The company earns about ten times the revenue that Twitter does and delivers significantly better profitability.


While Twitter is expected to report strong revenue growth and user engagement, user growth will be the metric to watch out for in Q3. View our Twitter stock review video to see why we think the company to be a risky bet.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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