Twitter Tops Earnings Projections, but Growth Pace Seen Slowing

Twitter Tops Earnings Projections, but Growth Pace Seen Slowing
  • Sales jumped 21 percent, the most in two years, to $664.9 million
  • Monthly active users rose to 336 million, up by 6 million
  • Monthly user growth was up only 2.8 percent from a year ago

Twitter beat analysts' estimates for earnings in the first quarter and showed signs that it's finally overcoming a slump, but the nascent turnaround was tempered by an outlook for slower growth this year.

The social media company's push into live video and more personalised content appears to be starting to pay off, boosting revenue and profit in the first quarter by luring users and advertisers. Sales jumped 21 percent, the most in two years, to $664.9 million (roughly Rs. 4,400 crores), the company reported. Twitter, originally known for its 140-character posts, said monthly active users rose to 336 million, up by 6 million from the prior period and slightly ahead of analysts' predictions.

Still, the company said in a letter to shareholders Wednesday that it will be tough to match last year's growth rates in the second half of this year, and as a result the pace of revenue gains will more resemble those of 2016.

The shares were whipsawed, initially rising as much as 14 percent in early trading when the results were first posted, then gradually slipping after the remarks on an analyst call regarding the growth outlook. The stock fell as much 7.7 percent and was trading down 3.9 percent, to $29.29 (roughly Rs. 1,960), at 10:28am. in New York, along with a broader decline in benchmark indexes.

"Twitter is still in rebuilding credibility mode with investors and advertisers, so it's important they keep demonstrating momentum relative to expectations," said Richard Greenfield, an analyst at BTIG. "They are continuing to position themselves so expectations don't get out of control."

Heading into the earnings, those expectations were already running high. An increasing number of analysts started seeing the company stabilising after a rocky few years, when it struggled to compete for ad dollars with the likes of Facebook and Google's YouTube. Since Twitter reported a third-quarter earnings beat in October, its shares have rallied and been upgraded by at least eight analysts.

But rough patches remain. Monthly user growth was up only 2.8 percent from a year ago, the slowest pace in two years. That contrasts with Facebook, which has six times more users than Twitter and increased its monthly users by 14 percent in the fourth quarter. Facebook reports earnings Wednesday afternoon.

And more of Twitter's growth is now coming from international markets as the US gets saturated. Monthly active users in the US increased by 1 million from the fourth quarter to 69 million. Internationally, MAUs grew to 267 million users from 262 million. Revenue in the US increased 2 percent year-over-year, while international revenue jumped 53 percent.

Chief Executive Officer Jack Dorsey, who also runs mobile payments platform Square, has focused on making Twitter more useful, including streaming programming such as National Football League highlights and recaps of series like Game of Thrones. The company is applying artificial intelligence to put the most relevant tweets at the top of people's feeds, and has added features that curate tweets, photos and videos around events. Twitter said daily active users increased 10 percent in the recent period, marking the sixth consecutive quarter of double-digit increases. The company doesn't give a total number for DAUs.

Dorsey has been honing the platform into a place to see "what's happening now," and positioning the site as the place to find out about live events from news to concerts.

Awareness of Twitter's brand has also gotten a boost from frequent tweets by public figures like President Donald Trump, who is among the platform's most high-profile users. Global events like the Olympic games and government elections also help to drive user growth.

And as Twitter has worked to root out terrorist content and abusive trolls, advertisers' perceptions of the platform are also improving, according to a survey conducted by RBC Capital Markets and Ad Age.

"Twitter's video ad product continues to perform well as advertisers continue to look for higher quality online video impressions," wrote Morgan Stanley analyst Brian Nowak, a long-time Twitter bear who upgraded the stock to equal-weight last week, citing improved personalisation that's keeping users on Twitter for longer.

Twitter posted net income of $61 million (roughly Rs. 407 crores), or 8 cents a share, in the first quarter, Marking its second quarter of profit under generally accepted accounting principles. That compared with analyst projections for a net loss of 2 cents on average. Profit excluding some costs was 16 cents a share, exceeding estimates for 12 cents.

The company gave a second-quarter outlook for adjusted earnings before interest, taxes, depreciation and amortisation of $245 million to $265 million. Analysts estimated $218 million.

Bloomberg produces TicToc, a global breaking news network for the Twitter service.

While Twitter seems to have found a path for growth, Dorsey is being pressed to follow in the footsteps of Facebook CEO Mark Zuckerberg and testify before Congress about data privacy. Twitter, Facebook and Google are all facing calls for potential regulation on internet companies following revelations that political-consulting firm Cambridge Analytica harvested private data from some 87 million Facebook users. Twitter itself was found to be overrun by Russian bots during the 2016 US election cycle.

Twitter continues to address criticism that it hasn't done enough to combat the spread of misinformation, harassment and manipulation from automated posts. Last month Dorsey asked the public to propose solutions to make the social network a nicer place by measuring "collective health, openness, and civility of public conversation."

Twitter is working on a "transparency centre" to show how much political campaigns spend on advertising, and the company endorsed the Honest Ads Act, a Senate bill that would subject online political ads to the same sort of disclosure rules that govern similar content on TV and radio.

Twitter said it's limited the ability of users to perform coordinated actions across multiple accounts, which has resulted in roughly 90 percent fewer users creating fake or automated engagement through the social media dashboard TweetDeck. In the first quarter, the company said it removed more than 142,000 applications connected to Twitter that violated developer rules and were collectively responsible for more than 130 million "low-quality" tweets during the same period.

© 2018 Bloomberg LP


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