Twitter Earnings Review Q3 2014

  • Twitter continued to deliver stellar revenue growth in Q3 2014.
  • Twitter's user growth, engagement levels and Q4 revenue guidance are disappointing.
  • Twitter valuations seem to be riding solely on revenue growth, making it a risky bet.
Twitter Earnings Review Q3 2014

Twitter (NYSE:TWTR) reported its earnings for Q3 2014 on 27 October. Twitter’s earnings (adjusted EPS) for the quarter were in line with analysts’ expectations and its revenue growth beat estimates. However, the company’s user growth and engagement levels revived concerns about Twitter’s scalability, and its Q4 2014 revenue guidance implied a significant slowdown from its current growth rate. Following the earnings release, Twitter stock was down by 11% at $43.2 a share in after-hours trading. As per our Twitter stock analysis, we find it a risky bet at its current valuations.

Twitter Earnings Q3 2014 – Estimates vs Actuals



Beat %

Revenue ($ million)




Adjusted EPS $




Twitter also beat its revenue and adjusted EBITDA guidance. The company’s revenue guidance of $330-$340 million was lower than analysts’ estimates. Twitter’s adjusted EBITDA came in at $68 million, much above its guidance of $40-$45 million.

Twitter Revenue Growth

In Q3, Twitter continued its streak of exceptional growth, delivering a revenue growth of 114% YoY. Twitter’s revenue for the quarter came in at $361 million, adding $48.8 million over the previous quarter.

The company earned $320 million or close to 89% of its revenue by serving advertisements and earned 85% of its ad-revenue from mobile advertising. The micro-blogging site earned $41 million or about 11% of its revenue from data licensing and other streams.

Twitter’s ad-revenue per 1000 timeline views grew at a solid rate of 82.5% YoY and 10.6% sequentially. However, the rate of growth (YoY) slowed for the first time after accelerating consistently, quarter after quarter, from 49.2% a year ago to 100% growth in Q2 earlier this year. While it’s hard to find fault with an 82.5% growth, at Twitter’s sky-high valuations, the slightest hint of a slowdown could trigger disappointment.

Twitter’s revenue per MAU (Monthly Active User) in Q3 came in at $1.27, growing 10% sequentially and 75% YoY. Here again the YoY growth rate declined for the first time in over a year.

While these points are probably worth noting, given the lower revenue guidance for Q4, Twitter’s revenue growth remained exceptional during Q3 2014.

Twitter User Growth

Sluggish user growth overshadowed Twitter revenue growth in Q3, as its user base grew to 284 million MAUs. The YoY rate of growth in MAUs continued to decline and reached its lowest level so far at 22%. Twitter’s absolute MAU addition of 13 million MAUs also marked its lowest quarterly user addition in 2 years, with the exception of Q4 2013, when it added 9 million MAUs.

In Twitter’s earnings call, the company’s CFO, Anthony Noto explained the slower user addition as follows:

“international net ads slowed a bit sequentially due primarily to the implementation of increased authentication measures, which negatively affected users in a number of APAC countries”

Further, as per Twitter’s earnings slide presentation, about 11.5% of its MAUs accessed Twitter solely through third party applications. That marks an uptick from 11% in Q2 2014. We had explained in our detailed coverage of Twitter’s user growth, how this could reduce the user base to which Twitter serves ads. Based on the latest numbers, about 251 million MAUs actually login to Twitter’s site or app.

Twitter User Engagement

Twitter’s Timeline Views grew to 181 billion during Q3 2014, clocking a YoY growth of 14%. However, the micro-blogging site added just about 8 billion incremental timeline views this quarter, halving from the addition of 16 billion in Q2 2014. This was in spite of the enormous activity on Twitter pertaining to the FIFA World Cup, during which records like Tweets Per Minute were broken on multiple occasions.

YoY growth in Twitter’s Timeline Views/MAU metric was negative (-7.2% in Q3) for the fourth quarter on the trot. Further, Timeline Views/MAU also fell sequentially from 640 in Q2 2014 to 636 during Q3, breaking the trend of sequential improvements in the preceding 2 quarters.

Twitter’s management attributed the fall to the focus on improving user experience and accessibility of content, which could bring down the number of timeline views. The management expects the Timeline views/MAU to be flat on a YoY basis in Q4.

Twitter Profit Margins

Twitter continued to report heavy losses, reporting a net loss of $175 million with a net loss margin of 48%. Twitter’s adjusted EBITDA (earnings before interest tax depreciation and amortization) stood at $68 million, implying a 19% adjusted EBITDA margin, a minor improvement from 17% in Q2.

Twitter Future Outlook

Twitter’s Q4 2014 revenue guidance of $440-$450 million implies a much lower growth than its LTM (last twelve months) average of 118%.

The guidance appears to have spooked investors as the company’s management indicated its intent to be more “accurate” with its guidance and advised analysts against “projections that deviate meaningfully from our guidance”.

Twitter revised its full year revenue and adjusted EBITDA guidance upwards.

Twitter Guidance

Lower End

Higher End

Growth Rate/EBITDA margin

Q4 2014 Revenue ($ million)




Q4 2014 Adjusted EBITDA ($ million)




FY 2014 Revenue ($ million)




FY 2014 Adjusted EBITDA ($ million)




Twitter Valuation

Twitter stock currently trades at a price of $48.56 a share. Twitter’s Price to Sales ratio of 26.3 makes it very expensive. Even if the stock falls by 11% as indicated by after-hours trading, it will continue to trade at an expensive valuation of 23.4 (PS).

Twitter’s revenue growth continues to remain exceptional. Further, the company’s acquisition of CardSpring, a payments infrastructure company, could be an indication of progress towards its e-commerce ambitions.

While revenue growth might continue to remain strong, Twitter’s user growth and engagement levels raise questions about its scalability, yet again. Further, the disappointing Q4 revenue guidance comes at a time when Twitter valuations have been riding solely on its stellar revenue growth. We see further potential for correction in Twitter stock price.

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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