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Twitter’s Share Price Tumbled 12% After Earnings Release; Over-Reaction?
Corporate Digest | 29 October 2014
By: Louis Kent Lee
Articles (199) Profile

After its notable IPO last year which saw its price crossing over US$73 a share, Twitter has now flown back to greet lower price levels around the mid US$40’s range.

Last night, Twitter took a price beating of 10 percent to US$43.78 after its earnings release and continued to fall some 2.08 percent to US$42.87 after hours.

Does this then present an opportunity to pick up this blue bird? Key points to note below.

Key Metric Reflected Slowdown
As far as social media is concerned, metrics pertaining to user engagement on your platform would be the key thing to track. For twitter, timeline views per monthly active user (MAU) fell by 2.5 percent (793 to 774) on a quarterly comparison, which was also the second straight month this key engagement metric reflected a slowdown.

Timeline views from the newer user base also reflects less time spent on viewing their timelines. The slower growth rate MAU is experiencing also draws concerns that the market can be reaching a level of maturity.

User Base
The company currently has a MAU base of 284 million. This number pales in comparison to Facebook’s 1.35 billion users.

The primary reason why Facebook is beating estimates is because it has been successful in using this large user base to monetise adverts. On that basis, it is natural for firms to choose advertising platforms with a bigger base, like Facebook, instead of allocating advertising budgets to Twitter directly as the first option, when the user base is significantly lower.

Efforts To Bring In More Revenue Options
In its bid to open up more advertising options, Twitter has gone through quite some changes, which saw the introduction of in-app promotions, website cards, and video adverts,

Year on year revenue growth from promoted tweets was up 136 percent, and meaningful contributions from new advert formats, some of which are in beta stage still, like promoted video ads, mobile app downloads and website cards were also seen.

Twitter’s recent release of the “Buy now” commerce move to purchase items directly from a tweet is also set to add further mix to the revenue channels.

As of current, it is still unclear of the performance of such new initiatives, until telling data from such revenue recognition is clearly seen in the next few quarters.

Guidance Numbers To Watch
Twitter’s revenue for 3Q14 was $361 million, which beat estimates of US$351 million, while earnings per share for 3Q14 was US$0.01, in line with estimates.

Earnings call with management revealed that for 4Q14, Twitter is raising its revenue guidance to US$440 – US$450 million (US$23 million higher than previously implied 4Q14 guidance in its earnings call in 2Q14), and an EBITDA range of US$100 – US$105 million (US$60 million above 4Q14 guidance in 2Q14 earnings call brief).

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.


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The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

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