Twitter Takes a Dive After Earnings Beat But User Growth Lags

Twitter

Source: http://www.flickr.com/photos/trekkyandy/

Only a company with a hype-based valuation like Twitter (NYSE:TWTR) could report earnings that beat Wall Street estimates and still see its stock price tank. Reporting earnings for the first time as a public company, Twitter posted fourth-quarter revenue of $243 million, up 116 percent on the year and above the mean analyst estimate of $217.8 million. Adjusted earnings per share came in at 2 cents, above the mean estimate of a loss of 2 cents.

Full-year revenue of $665 million, up 110 percent on the year, beat the mean analyst estimate of $639.4 million. Full-year adjusted earnings per share of came in at a loss of 18 cents, still beating the mean analyst estimate of a loss of 19 cents.

“Twitter finished a great year with our strongest financial quarter to date,” commented Twitter CEO Dick Costolo, but investors and traders still had complaints. Shares fell as much as 12 percent in post-market trading as the curtain was peeled back and the guts of the report examined. Monthly active users (or, MAUs) grew just 3.8 percent sequentially to 241 million, the slowest growth rate in a year (Twitter averaged 7.7 percent sequential MAU growth in the preceding three quarters). Analysts were looking for closer to 250 million MAUs. Timeline views, a measure of engagement, also fell short of expectation, up 26 percent on the year but down 6.8 percent sequentially at 148 billion. Analysts were hoping for closer to 174 billion.

Despite the dramatic decline, volatility for Twitter stock is not entirely a surprise. Many analysts who are bullish on the stock admitted well before the earnings report that the company’s valuation was high, that market sentiment was playing a huge factor, and that trading could be volatile especially if all did not go as expected with the first earnings report.

But the top- and bottom-line beat was still a welcome surprise, even if user growth and engagement metrics were softer-than-expected, and the future still looks bright. Twitter provided a first-quarter revenue projection in a range between $230 million and $240 million, above the current mean analyst estimate of $215.23 million, and EBITA is expected in a range between $10 million and $16 million. Full-year earnings are expected in a range between $1.15 billion and $1.2 billion, also above the current mean analyst estimate of $1.13 billion, and EBITA is expected in a range between $150 million and $180 million.

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