Twitter: Down, but Not Out

Twitter (TWTR) announced first quarter ended March 31, 2016 total GAAP revenue of $595 million, up 36 percent year-over-year from $436 million during the same period last year. Going forward, Twitter estimates second quarter of 2016 revenue to be in $590 to $610 million range.

Twitter declared first quarter of 2016 non-GAAP net income of $102.7 million or $0.15 per diluted share, up 121 percent year-over-year from $46.5 million or $0.07 per diluted share in first quarter of 2015. Moving ahead, the company estimates second quarter of 2016 adjusted EBITDA to be in $145 to $155 million range.

The global public self-expression company reported continued year-over-year top line and bottom line growths primarily driven by the strategic addition of 5 million monthly active users during the quarter to make a total of 310 million users by the quarter end, somewhat better than the analyst’s projection of 308 million total active users.

Impressive growth  

A majority of Twitter’s top line growth comes from the revenue contributions from the advertising segment, which although declined 17 percent sequentially from $641 million in fourth quarter of 2015 to about $531 million in first quarter of 2016, grew 37 percent year-over-year from $388 million in first quarter of 2015 to $531 million in first quarter of 2016.
Mobile advertising revenue contributed 88% to net advertising revenue.

Complete ad engagements expanded 208% year-over-year with accelerated growth over fourth quarters of 2015 due to notable adoption of auto-play video, growth of ad load compared to the same period last year, and enhancements witnessed in click through rate in certain ad formats. The typical cost per ad engagement declined 56% year-over-year, again driven by auto-play video feature addition. Cost per app install ad formats and ad engagement direct response grew impressively year-over-year, with significant enhancements achieved in aiming, extent, and inspired competences for such formats.

The significant growth in customer engagements primarily driven by new functionalities introduced by the company during the quarter has resulted in year-over-year advertising revenue growth which is expected to continue to benefit the company’s overall top line growth.

Twitter’s advertising revenue segmented by geography for the quarter grew over 36 percent year-over-year for the U.S., expanded more than 38% year-over-year internationally and increased over 37 percent year-over-year worldwide which signifies a well-diversified company growth that must prove beneficial for Twitter and its key stakeholders over the longer term.

The average number of monthly active users for the quarter grew over 2% sequentially and over 3% year-over-year to 310 million in first quarter of 2016, primarily driven by rising customer traction for the company’s innovative set of expanded online services.

The superior geographical expansion of Twitter’s advertising revenue is mainly due to the globally expanding reach of the company’s advertising and social media platforms across the globe which is believed to deliver sustainable long-term company growth while offering attractive shareholder returns.

Key improvements to watch

Twitter has continued to deliver solid monetization metrics with robust sequential and year-over-year growth in ad engagements while significant sequential and year-over-year decline in cost per ad engagement, primarily driven by strategic adoption of auto-play video feature in its attractive customer offerings.

Twitter has made several key enhancements to its conversion lift recording tool during the first quarter of 2016 that includes allowing advertisers with the capability to get reports straight in the Twitter Ads dashboard. In addition, Twitter also launched access to the uniquely developed cross-device insights that provides marketers with in-depth analysis to enable them to comprehend the total ROI generated from their mobile operations. Moreover, Twitter recently declared its general website label to every marketer worldwide which allows marketers to easily manage crafted audience movements and identify website conversions.

The notably growing ad engagements both sequentially and year-over-year coupled with the declining cost per ad engagement signifies the strength of company operations and driving sustainable long-term growth while delivering outstanding investor returns.

Twitter is continuing to face tough competition from its rival Facebook (and Facebook messenger) and is notably losing market share to the global social networking giant. Hence, Twitter needs to devise new customer acquisition strategies soon to turn the tables around and start delivering attractive growth.

Conclusion

Overall, the investors are advised to “Hold” their position in Twitter, Inc. considering the company’s consistent long-term growth efforts being supported by a solid financial position with significant total cash position of $3.58 billion and weaker total debt of $1.60 billion, encouraging the company to make future growth investments. However, the profit margin of -18.44% seems disappointing. The PEG ratio of 0.60 indicate weak company growth and comparable to the industry’s growth average of 0.77.
Published on May 19, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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