- Twitter beat revenue and adjusted EPS estimates for Q4 2014.
- Significantly better profitability was the highlight of Twitter earnings.
- Twitter valuations are still expensive post the strong Q4 revenue performance.
Twitter (NYSE:TWTR) reported its earnings for Q4 2014 on 5 Feb 2015, after market hours. The microblogging site beat revenue and EPS estimates by a huge margin, driving the stock price 9% higher, to $45 a share in after-hours trade. Twitter’s performance was rather disappointing on metrics such as user growth and engagement. However, Twitter reported a strong financial performance, the highlight being a significant improvement in profitability. Twitter valuations continue to be steep post Q4.
Twitter Earnings Beat Estimates Convincingly
Twitter beat analyst estimates by a huge margin in Q4 2014. Twitter beat revenue estimates by about $26 million. The microblogging site delivered a much needed huge surprise on the earnings front, doubling expectations of adjusted EPS.
|Twitter Earnings Q4 2014||Estimates||Actuals||YoY Growth|
|Twitter Revenue ($ million)||453||479||6%|
|Twitter Earnings Per Share - $ (adjusted)||0.06||0.12||100%|
Twitter also stomped past its own guidance for Q4. Twitter’s revenue guidance for Q4 was $440 to $450 million, a little lower than analyst estimates. Adjusted EBITDA (earnings before interest tax depreciation and amortization) came in at $141.5 million, way ahead of its guidance of $100 to $105 million. Twitter’s adjusted EBITDA margin came in at 29.5%.
Twitter’s lack of profitability has been one of its primary criticisms apart from the lack of user growth. Profits are still quite a distance away, in terms of net profits, however, Twitter showed significant improvement in Q4.
Twitter Revenue Growth
Twitter registered a revenue of $479 million, growing at 97% YoY (over Q4 2013), way faster than the higher end of its Q4 guidance of 85%, surprising the street. In its previous earnings call, the management indicated that its guidance would be more accurate this time around and urged analysts not to expect Q4 revenue numbers to diverge significantly from its guidance.
Twitter earned a little over 90% of its revenue from advertising, and the balance from data licensing and other revenue streams. Twitter’s monetization remained strong on mobile, earnings the company 88% of its ad revenue. Twitter earned about 34% of its revenue outside the US.
Though Twitter’s growth slowed in percentage terms, its absolute revenue addition in Q4 was its highest so far at an addition of $118 million over Q3 revenue.
Twitter Profit Margins
Twitter registered an operating loss of 98 million and a net loss of 125 million representing operating and net loss margins of 20% and 26%. Twitter showed a vast improvement in profitability compared to the rest of 2014. The average operating and net margins in 2014, excluding Q4, were -48% and -49% respectively. Twitter’s basic EPS stood at -0.20 $ per share.
Twitter Operating Metrics
Twitter User Growth
Twitter User Engagement
Twitter’s Timeline Views metric marked its first uptick in YoY growth in about 2 years. However that’s largely because the comparison happens to be with Twitter’s worst numbers in a 2 year period, when the site saw its one and only sequential dip in Timeline Views.
Twitter’s Timeline Views in Q4 were almost flat sequentially, growing at 1%, its slowest sequential growth since the dip a year ago. Timeline views grew by 1.3 billion view in Q4, which is also its lowest sequential addition, leaving aside Q4 2013.
Timeline Views per MAU grew YoY for the first time in over a year, but that’s probably just a function of the lackluster user growth.
Twitter Guidance for Q1 2015 and FY 2015
As per Twitter’s guidance, the company expects to bring in $440 to $450 million in revenue for Q1 2015. Adjusted EBITDA is expected to be in the range of $89 to $94 million. The guidance pegs revenue growth at 76% to 80% YoY.
For the full year, FY 2015, Twitter expects revenue to come in at $2.3 to $2.35 billion, representing a 64% to 68% growth over FY 2014 total revenue of $1.4 billion.
Twitter valuations remain at elevated levels in spite of its strong revenue performance in Q4. Twitter’s Price to Sales ratio of 18.2 is steep. More so given its lack of profitability.
Twitter’s stock price is up in after-market trade, and could open at $45 a share, taking its Price to Sales ratio to 20. If Twitter’s price remains where it is, based on its FY 2015 revenue guidance, its P/S multiple will be around 12, which will be way more acceptable, if Twitter actually starts to make some profits.
To sum up, Twitter’s financial performance was very encouraging. The site’s disappointing user growth and engagement metrics were overshadowed by its financials. As long as Twitter can keep piling on good financial performances, investors might choose to set aside other metrics. However, without user growth, it’s likely that revenue growth will become tougher for Twitter in the long term. As things stand though, Twitter valuations make it a risky investment option.
Twitter Earnings Preview Q4 2014
(published on 22 Jan 2015)
- Twitter earnings for Q4 2014 are due on 5 Feb 2015.
- Twitter user growth and engagement will be closely watched.
- Twitter valuations are expensive even after the 42% correction.
Twitter earnings for Q4 2014 are scheduled to be reported on 5 Feb 2015 post market hours. Twitter’s earnings release comes in the midst of testing times for the company, and Twitter’s user growth and engagement numbers will come into the spotlight yet again. Twitter valuations are still very steep and Twitter stock was given a junk rating last year. A slip up in numbers could further dent an already depleted Twitter market cap. Going by the Twitter Q4 guidance though, that scenario doesn't seem to be too unlikely.
Twitter Earnings Schedule
- Twitter Earnings Date - 5 Feb 2015
- Twitter Earnings Release - 4 PM EST
- Twitter earnings Call - 5 PM EST
Twitter Earnings Guidance & Analyst Estimates
Twitter’s revenue guidance for Q4 2014 stands at $440 to $450 million, translating to an 81% - 85% YoY growth, way lower than its average growth rate of 118% over the last year.
Twitter has almost always beaten its own guidance. However, in the Twitter earnings call, the company’s management emphasized their intent to provide an “accurate” guidance, and the same is reflected in analyst estimates as well.
Analysts expect Twitter revenue to grow slightly faster than the guidance suggests, at 86% YoY.
|Twitter Earnings Q4 2014||Analyst Estimates||YoY Growth|
|Twitter Revenue ($ million)||453||86%|
|Twitter Earnings Per Share - $ (adjusted)||-0.02||0.06|
Twitter Earnings Q3 2014 Recap
In Q3 2014, Twitter registered a revenue of $361 million, growing at 114% YoY. Twitter’s user monetization rate (ad-revenue per 1000 timeline views) grew at a solid 82.5%, albeit slower, compared to the previous quarter.
Twitter losses continued to mount as the company lost $162 million at an operating level and $175 million in net losses. Twitter’s operating and net loss margins came in at 45% and 48% respectively.
Twitter User Growth
Twitter closed Q3 2014 with a user base of 281 million monthly active users (MAUs). Twitter user growth continued to be sluggish, adding 13 million MAUs during the quarter. Twitter’s user growth rate (YoY) continued to slow and reached its lowest, at 22%.
Twitter User Engagement
Growth in Timeline Views, an indication of user engagement, also dipped in Q3, following a spike in Q2. The spike in user engagement in Q2 2014 was partly because of the elevated user activity around the FIFA World Cup. In spite of the second half of that tournament taking place in Q3, engagement numbers dipped.
Twitter explained both, the lower user growth and engagement numbers during their con-call. We’ve covered all of that in more detail in our coverage of Twitter earnings for Q3 2014. You could also watch our Twitter earnings video for a quick roundup of Q3.
Twitter Q4 Earnings: A Make Or Break?
Nearly a year ago, Twitter reported its first result as a publicly listed entity, and fell from its lofty perch at $66 a share. Since then, time and again, lackluster Twitter user growth and engagement numbers have raised questions about Twitter’s scalability as a platform. Even as Twitter’s stock price was coping with those concerns, Twitter’s revenue guidance for Q4 spooked investors.
For a long time, it seemed as if Twitter valuations were hanging by a solitary thread, Twitter’s revenue growth. Twitter’s Q4 guidance threatened to take away that bit of rationale as well. The result is a much depleted Twitter stock price of $38 a share, down to nearly half its value from a year ago.
It’s been such a bad year for Twitter that there’s even been speculation about Twitter CEO Dick Costolo’s exit from the company. Of course, it goes without saying that the last 12 months have laid to rest the Twitter Facebook comparison. In November 2014, Twitter debt was rated junk by S&P, and naturally, the event has raised questions about the value of Twitter’s stock.
Given this backdrop, it’s safe to say that the upcoming Twitter earnings on Feb 5 could very well be a make or break for the microblogging site.
Even after a 42% correction in Twitter’s stock price, Twitter’s Price to Sales ratio of 20, is quite steep. If Twitter earnings disappoint in Q4, a further correction could be on the cards.
We’d have said Twitter valuations were expensive even if it didn’t have the underlying problems that it does. But now that there are so many unanswered questions, valuations become yet another reason to be wary of this stock.
For now, Feb 5 promises to be a very interesting day for Twitter investors and observers alike.