Update: Twitter Crushes Expectations

Jul.29.14 | About: Twitter, Inc. (TWTR)


Twitter reported revenue of $312 million and EPS of $0.02, compared to analyst expectations of $283 million in revenue and a loss of $0.01 per share.

This development strengthens my prior thesis.

In my previous article, I predicted that Twitter would surpass earnings estimates, the stock would rise temporarily, and ultimately falter in the long term.

Twitter (NYSE:TWTR) reported a stellar earnings release today. Revenue grew 124% y/y and well surpassed analyst expectations. Twitter finally became profitable and recorded earnings per share of $0.02. On a user growth and engagement level, Twitter announced positive results as well. Monthly average users grew 24% y/y to 271 million, mobile monthly average users increased 29% y/y to 211 million, and timeline views expanded 15% y/y to 173 billion.

Twitter was able to convert the growth in users and engagement to revenue, as advertising revenue per thousand timeline views reached $1.60, an increase of 100% y/y. Further, management gave positive guidance, expecting Q3 revenue to be between $330 million to $340 million. On a full year basis, management is expecting revenue to be between $1.31 billion to $1.33 billion. This guidance does not blow out analyst expectations, but it is certainly above the consensus estimate of $323 million.

In my article yesterday "Twitter: Earnings May Surprise, But Long-Term Bear Thesis Intact," I opined that the World Cup would temporarily increase user growth and engagement levels and allow TWTR to beat analyst earnings estimates. I do not believe TWTR will be able to sustain this user growth and engagement levels and think this short-term pop provides a selling opportunity. CEO Dick Costolo provided evidence of the reliance on the World Cup buoying Twitter's user growth and engagement in the press release :

"We remain focused on driving increased user growth and engagement, and by developing new product experiences, like the one we built around the World Cup, we believe we can extend Twitter's appeal to an even broader audience."

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