Twitter (NYSE:TWTR) failed to impress investors on April 29 when it reported first-quarter earnings. The data, at a glance, wasn’t bad. A GAAP loss of $132.36 million, or 23 cents per share, in the first-quarter of 2014, compared to $27 million, or 21 cents per share, in the year-ago period. The unadjusted figure includes $126 million in stock-based compensation expenses.
Adjusted net income was reported at $183,000, or zero cents per share, which compares against an adjusted loss of $11 million, or 8 cents per share, in the year-ago period. The mean analyst estimate was an adjusted loss of 3 cents per share. Revenue of $250 million, up 119 percent on the year, beat the mean analyst estimate of $241 million. Advertising revenue clocked in at $226, up 125 percent on the year and accounting for 90.4 percent of total revenues. Mobile ad revenue accounted for 80 percent of total ad revenue.
Where there was weakness — or, perhaps more accurately, some confusion — were in use growth and engagement metrics. Twitter reported average monthly active users (MAUs) of 255 million, up 25 percent on the year but shy of a mean analyst estimate of 257 million. This, combined with a weak outlook for the coming quarter, spooked the market and drove shares down more than 8 percent overnight.
The selloff isn’t exactly surprising given that Twitter is a glass canon — a company with a sky-high but fragile valuation based on some broad interpretation of its potential to grow in the near future. Many analysts jumped onto this idea immediately in the wake of the IPO, but with more and more data under their belt it feels like the market is understanding Twitter better and better. Here are a couple of questions from the company’s first-quarter earnings conference call that help unpack the situation.