Twitter Earnings - Q2 2014 Preview

  • Twitter is likely to beat its own revenue guidance and analyst estimates.
  • Twitter engagement metrics should improve in Q2.
  • Twitter is a risky bet at its current valuations.

Twitter Earnings - Q2 2014 Preview

If you are a Twitter (NYSE:TWTR) shareholder, chances are, you don’t have very fond memories of the company’s earnings announcements so far. There have only been two such occasions since the microblogging site went public late last year. However, on both occasions, the stock tanked following the earnings release. Twitter’s stellar growth was outweighed on both occasions by long term growth concerns tied to sluggish user growth and declining engagement metrics.

In this quarter however, we expect Twitter to report a happier story. Through the quarter, we’ve covered a few of Twitter’s moves that could further improve user monetization. We think it’s very likely that Twitter will surpass revenue estimates. We also expect engagement metrics to spike following the roaring user response to the FIFA World Cup on Twitter. We’ll share some key stats on that as well. At its current stock price of $38 a share, Twitter trades at premium valuations and is a risky bet.

Twitter Q2 2014 Guidance

Lower End

Higher End

Twitter Revenue for Q2 2014 ($ million)



Twitter YoY Growth (Implied)



Twitter Adjusted EBITDA ($ million)



Twitter Stock Based Compensation ($ million)



Twitter Implied EBITDA ($ million)



Twitter Adjusted EBITDA: Earnings Before Interest Tax Depreciation and Amortization adjusted to exclude stock based compensation.

Twitter Q2 2014 Analyst Estimates

  • Analysts expect Twitter to report $282 million in revenue.
  • Twitter’s earnings per share - EPS  is estimated at $-0.01 a share.

Twitter Revenue Growth & Profitability

Twitter’s Adjusted EBITDA guidance is lower than its Adjusted EBIDTA for Q1 2014. However, in Q1, Twitter delivered more than twice its guidance for the quarter. Besides, that’s a small sample size from which to draw any conclusions. It goes without saying though that no Net Profits are expected.

In the last four quarters, Twitter has averaged a revenue growth rate of 111%. The company’s guidance for the quarter is a tad lower with 101% growth at the higher end. However, we expect Twitter to surpass its own guidance and analyst estimates for Q2 revenue growth.

Twitter User Monetization

Soon after Facebook’s deal with ad-giant Publicis, Twitter entered into a similar deal with rival Omnicom. The deal which is worth $230 million, is spread over 2 years and is focused on mobile advertising. Twitter’s mobile ad buying platform MoPub is strongly positioned to leverage the deal given its reach of 1 billion iOS and Android users. What’s more, Twitter’s inventory wasn’t part of MoPub’s portfolio at the time of the deal, but is likely to be opened up for purchase through the platform.

Apart from acquiring mobile and phablet retargeting firm TapCommerce, Twitter also acquired native ads start-up Namo Media during Q2. Combine non-intrusive ads, retargeting expertise and MoPub’s reach with the fact that 78% of Twitter users are active on mobile devices, and it adds up to great potential.

Additionally, Twitter is also experimenting with a ‘Buy Now’ feature which indicates a potential e-commerce push going forward. To sum up, user monetization has been Twitter’s strength. It has been the one element that has propelled revenue growth consistently even as engagement and user growth metrics have been a let-down.

Twitter Engagement Metrics

Twitter acquired SnappyTV, a tool which enables users to clip, edit and share live video streams. Apparently the tool was already in use by the partners on Twitter. Better integration will make for richer content and will aid engagement levels on Twitter.

Twitter Engagement Metrics

A look at Twitter’s engagement metrics over the last 2 years shows that any help it can get in improving user engagement is welcome.

Engagement levels spiked last quarter in line with the Q1 trend. However, we expect that trend to continue over the next two quarters given the huge user activity on Twitter during the FIFA World Cup 2014. Here are some key facts.

  • Germany vs Brazil semi-final - 35.6 million tweets during the match, a Twitter record for a single event.

Twitter Top 5 User Engagement Statistics for the FIFA World Cup 2014

Image Source: Twitter Investor Relations/Twitter Blog

  • 618,725 Tweets Per Minute (TPM) after Germany won the final – Again, a Twitter record for an event.

Twitter Top 5 TPM statistics for the FIFA World Cup 2014

Image Source: Twitter Investor Relations/Twitter Blog 

  • 672 million tweets went out during the tournament

While most of these stats are spread across two quarters from Twitter’s earnings perspective, the platform also saw over 300 million tweets in June 2014 or Q2. On the whole these stats tell us what might be coming our way in the next 2 quarters in terms of user engagement.

User Growth

With monetization and engagement (at least for 2 quarters) looking promising, the focus will be on user growth. User addition has been on the decline, posing a threat to long term growth.

Twitter User Growth

Twitter Valuation

At $38 a share, Twitter trades at a premium valuation. Lack of net earnings implies that Twitter’s PE ratio is irrelevant. Twitter’s Price to Sales ratio of 27 is very steep, making it a risky bet.

At these valuations, a lot is riding on Twitter’s phenomenal growth. Any slip up could mean a correction like we’ve seen earlier. Further, as in the previous earnings announcements, poor user growth could outweigh solid revenue growth.

From another perspective, a mere change in investor sentiment could pull the plug on the stock’s valuations. We’ve seen how investors have become sensitive to earnings in case of stocks like Amazon, while a contraction in reasonably healthy profit margins has caused TripAdvisor’s stock to shed 7-8%. Twitter's valuations do remind us of the dot com bubble in the late 90's. Our Twitter stock analysis rates it a sell at these valuations.

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

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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