My Growth Portfolio: Twitter's Quarter Indicates Platform Strength

| About: Twitter, Inc. (TWTR)


Twitter reported strong momentum in Q2 2014 in terms of user additions, revenue and earnings.

Twitter monthly active users exhibited surprisingly strong growth.

I continue to remain positive on Twitter and maintain the stock in my growth portfolio.

Twitter (NYSE:TWTR) delivered a standout result in Q2 2014 as far as growth in it's monthly active user numbers and continues to reinforce the power of twitter as an advertising platform as well as a potentially strong digital commerce platform.

Market Opportunity

My central thesis behind my decision to include Twitter within my growth portfolio is that Twitter has significant potential as a short form internet messaging service to facilitate real time communications to a broad user community. This provides potential for real time offer targeting as well as context driven advertising . I also believe that Twitter will play a strong role in social commerce and in the growth of second screen advertising.

Revenue and profit growth

Revenue came in at $312.2M, a massive growth of 124% from Q2 2013. Revenue comfortably exceeded most analyst expectations. The strong growth in revenue was principally driven by the increase in advertising revenues. Twitter also reported much better than expected earnings with profit of $0.02 per share versus a loss of $0.12 per share in Q2 2013.

Focus continues to be user growth and engagement

The story of Twitter's Q2 2014 update was that user growth was very strong, especially in mobile.

Twitter's monthly active users grew to 271M in Q2 2014, which represented almost 26% year over year growth. Also encouraging was that the growth in mobile monthly active users (MAU) was also strong, with mobile MAU's increasing to 211M, a growth of 29%.

Mobile MAU growth is significant, because for a company who's real value proposition is real time communications, mobile is ultimately the place where Twitter will deliver the strongest value proposition to users and advertisers.

Some questions remain as to whether the spike in MAU's was temporary as a result of world cup interest and can be sustained beyond specific events. My expectation is that any spike attributable to world cup traffic will continue to be sustained as users discover other latent value and interest groups within the twitter platform

Social Commerce

The other area of significant opportunity for Twitter is the enablement of transactions and commerce through offering users the ability to purchase goods and services on the platform. While not much detail was provided in the latest quarter, Twitter is testing a "Buy Now" option on the platform. I believe this could eventually prove to be as big a market opportunity for the company as digital advertising currently is.

Conclusions and Key Takeaways

Twitter user growth is encouraging and speaks to the potential that the Twitter platform offers for advertising and commerce. I will be watching for continued evidence of user growth and also initial results from Twitters entry into social commerce. Any data points indicating user interest in Twitter's Buy Now option and willingness to transact on Twitter should provide a catalyst for the stock to move higher.

Disclosure: The author is long TWTR. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.