Quantifying World Cup Impact - What Twitter Could Learn From Comcast

Aug.18.14 | About: Twitter, Inc. (TWTR)


Going into Q2 earnings, I expected Twitter to show the World Cup impact in a similar manner that Comcast showed the impact of the Olympics on its Q1 2014 results.

Twitter implied the World Cup impact was de minimis.

The market's valuation of Twitter implies the World Cup impact in Q2 is recurring.

I do not think Twitter can replicate Q2's out-performance on operating metrics or advertising rates in Q3. I rate the company a sell.

Click to enlarge

Picture: Mikaela Shiffrin, Sochi Olympics. Source: canada.com

When Twitter, Inc. (NYSE:TWTR) was set to announce its Q2 earnings a few weeks ago, I expected the company to announce a continued deterioration in its operating metrics and revenue. On D-Day For Twitter, I also expected the shares to sell-off just like Pandora Media's did (NYSE:P) - another momentum stock that had disappointed the market days earlier:

The market has given the benefit of the doubt to momentum stocks like Twitter and Pandora Media, and provided them with high valuations based on revenue growth. However, if Twitter experiences a decline in any of its revenue metrics or disappoints on Q3 guidance, I would expect the shares to sell-off violently after-hours.

However, a debate broke out about [i] the impact of the World Cup on Twitter's Q2 metrics and revenue and [ii] how the company would explain that impact:

Commenter 1: "The World Cup will be a turning point! It's going to add 20 million users!" Really? ... It may get a huge pop on earnings, but without some huge game changer (and no, they haven't had a game changer yet) it's never going to go back to its old highs.

Commenter 2: I would also add that the one time spike in tweets and new users due to the World Cup needs to be considered when they tell their numbers.

Commenter 3: Record during the football World Cup = 600,000 per minute during a game. at 2 dollars per 1000 visualization, 4 dollars per each promoted follower, 2 dollars per promoted story ... thanks, but no thanks. I rather get my facts from somewhere else rather than one dude [Shock Exchange] that has no idea of anything.

How Comcast Quantified Impact of Olympics on Q1 2014

That said, I expected Twitter to be prepared to illustrate and speak to its operating metrics and revenue, including and excluding the impact of the World Cup. After all, Comcast, Corporation (CMCSK), (NASDAQ:CMCSA) had given them a road map based on how it presented the revenue impact of the 2014 Sochi Oympics. Comcast's revenue growth for Q1 2014 was impressive. To give investors a sense of its organic growth, the company showed revenue - by segment - with and without the Olympics:

  • Consolidated revenue for Q1 2014 increased 13.7% to $17.4 billion. Excluding the $1.1 billion of revenue generated by the 2014 Sochi Olympics, consolidated revenue increased 6.5%
  • Of the different operating segments, cable networks revenue growth was the most dismal once you exclude Sochi; the segment's revenue grew only 1% annually, excluding the Olympics.
  • On the management conference call, not one analyst questioned the impact of the Olympics on the company's financial performance.

How Twitter Quantified Impact of World Cup on Q2 2014

Again, on Twitter's Q2 2014 earnings report, I expected the company to break out revenue including and excluding the impact of the World Cup. However, none came. Below are the company's Q2 2014 financial results:

  • Monthly active users were $271 million, up 24% annually and 6% sequentially during the quarter.
  • Timeline views during the quarter were 173 billion, up 15% annually and 10% sequentially. Q2 2014 performance was also 9% above the company's peak of 159 billion in Q3 2013.
  • User engagement as measured by timeline views per MAU ticked up 4% sequentially. However, the metric was still 8% below the peak of 692 set a year ago.
  • Revenue of $312 million increased 124% annually and 25% sequentially. The sequential growth was partly driven by the increase in ad rates.

On the managment conference call, Twitter received several questions from analysts about the World Cup impact on Q2 numbers. Not only was management unprepared to answer the question, but it practically dismissed any impact from the World Cup. My previous article explained my skepticism:

On the earnings call Twitter's CEO was adamant that the increase in MAUs and ad rates were driven by new products and not the World Cup. However, I find it more than a coincidence that the company exceeded the high water marks on most of its operating metrics in the same quarter.

After the earnings announcement, the stock shot up $11 (nearly 30%) to $50 per share. Several analysts rushed to upgrade Twitter to 27x run-rate revenue. In many ways, the earnings call left the World Cup impact up to the imagination of investors. I remain skeptical of Twitter's recurring revenue. Prior to valuing the company, I plan to quantify the company's recurring revenue, in a similar manner that Comcast did above.


Twitter blew away revenue and earnings estimates in Q2 2014. However, when management dismissed the World Cup impact on the Q2 financial results, it raised several questions. I do not think the company can replicate Q2's out-performance. I rate the stock a sell.

Disclosure: The author is short TWTR, P. 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.