Twitter Earnings - Q2 2014 - Solid Quarter But Risky Bet

  • Twitter delivered exceptional revenue growth beating estimates by 10%.
  • Twitter showed improvements on all metrics.
  • Twitter is becoming more and more risky with rising valuations.

Twitter (NYSE:TWTR) reported its Q2 earnings on 29 July 2014 and registered a huge jump in revenue to thrash estimates. The company’s Adjusted EPS also came out ahead of consensus estimates, adding to the positive movement in all reported metrics. To add to a great quarter on all fronts, the company also revised its full year revenue and adjusted EBITDA guidance upwards, driving the stock price through the roof in after-hours trading.

Twitter’s stock price is up over 28% in after-hours trading, potentially driving up its already inflated valuations. In spite of a strong all round performance, Twitter’s Price to Sales ratio of 30 (at $50 a share as per after hours price) is far too steep and makes it a highly risky bet.

Twitter Q2 Estimates vs Actual



Beat %

Revenue ($ million)







Twitter registered a huge beat on the revenue front going past its own guidance of $270-280 million for the quarter. The company also trumped analyst estimates by a whopping 10%.

Twitter Revenue Growth & Profitability

Twitter registered a revenue of $312 million and a Year-over-Year (YoY) revenue growth of 124% clocking its highest growth rate in the last 6 quarters. What’s truly impressive is that Twitter’s growth rate has now accelerated consistently for 5 quarters in a row. Giving credit where it’s due, Twitter’s revenue growth is exceptional.

Twitter Revenue Growth

Twitter reported operating and net losses of -$150 million and -$145 million, translating to margins of -48% and -46% respectively. The company reported Adjusted Earnings Before Interest Tax Depreciation and Amortization (EBITDA) of $54 million, much higher than its guidance of $25-30 million.

Twitter User Growth

Twitter’s user base expanded to reach 271 million Monthly Active Users (MAUs) marking an addition of 16 million MAUs. Over the last two quarters lacklustre growth worried investors who punished the stock in spite of its stellar revenue growth rates. Twitter’s user addition in Q2 marks a second quarter of improvement in absolute users added and also represents the highest additions in 5 quarters.

That said, one would probably want to look at most metrics with a little bit of caution over Q2 and Q3 2014 given that the impact of the FIFA World Cup is likely to have rubbed off  on them.

Twitter Engagement Metrics

As we had pointed out in our Twitter earnings preview, Twitter showed improvement in both engagement metrics; Timeline views and Timeline views/MAU with both numbers spiking to their 5 quarter peaks. Given that user activity on Twitter was higher in July (the second half of the tournament), we expect these metrics to spike further in the coming quarter.

Here’s what Twitter’s outgoing CFO, Mike Gupta had to say in this regard during the concall.

“Note, that these timeline view metrics do not include the curated World Cup experience that Dick spoke about earlier."

Source: Twitter Earnings Call

That said, user activity, and specifically tweeting/retweeting clearly spiked during the tournament, breaking records on multiple occasions. So, even if it’s not the curated experience, one could safely say the event itself has been of some help, driving engagement.

Twitter Monetization Metrics

As we had discussed in our earnings preview, Twitter has been making all the right moves to improve user monetization. In Q2 Ad Revenue/1000 timeline views doubled over Q2 2013 to reach $1.6. Twitter’s monetization has been its strength and is expected to continue trending higher in the coming quarters.

Twitter Q3 2014 Guidance

Lower End

Higher End

Growth Rate


Revenue ($ million)




Adjusted EBITDA ($ million)



FY 2014

Revenue ($ million)




Adjusted EBITDA ($ million)



Twitter revised (upwards) its full year revenue guidance by about 6-9% and its Adjusted EBITDA guidance by about 12-16%.

Twitter Valuation

Twitter did deliver a great quarter. However, as we mentioned earlier, we will be keen to observe its metrics after the impact of the FIFA World Cup dies out.

Even if one were to give Twitter the benefit of the doubt and take all metrics improvements at face value, at a stock price of $39 a share, Twitter’s Price to Sales ratio/valuation of 23 is very high. Further, if the stock actually opens at $50 (as per after hours price), Twitter’s Price to Sales ratio will jump to 30 making it insanely expensive.

To highlight Twitter’s crazy valuations, let’s look at a comparison, Facebook is still growing at a healthy 60 odd percent on a revenue base that’s nearly 10 times that of Twitter. The former enjoys a PS valuation of 19. Value Twitter using that multiple, we arrive at a price of about $31 a share. Here one should also note that Facebook delivers net profit margins of about 20%. Further, we think Facebook itself is valued quite generously.

We found Twitter valuation expensive at $30 a share even after assuming sustained 100% growth and 20% profitability starting Q2 2014. At its current price, Twitter is a very risky bet. In line with our Twitter stock analysis, we rate the stock a sell.

Check Facebook stock analysis, and compare it with Twitter.

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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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