Twitter Inc (TWTR) Shorts Run For The Hills

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July 30, 2014 11:56am NASDAQ:SOCL

twitterJay Taylor: Shares of micro-blogging site Twitter Inc (NYSE:TWTR) surged higher yesterday after the company’s blowout earnings report.


Twitter stock closed at $38.59 yesterday before the company declared earnings. Shares jumped almost $12 in after-hours trading following the report, a gain of over 30%. What did the company report that investors seemed to like so much?

Twitter greatly exceeded investor expectations in several key areas.

One of the more exciting metrics was revenue. Twitter was expected to nearly double its revenue from $139 million last quarter to $283 million this quarter. But the social media darling managed to exceed even those lofty expectations.

Twitter reported a 124% surge in revenue compared to last quarter, a total of $312 million generated in the quarter.

With $0.02 in non-GAAP earnings-per-share, the company beat expectations that it would lose $0.01 per share.

Monthly active users – a metric touted by social media companies but slammed by some critics – came in at 271 million versus expectations of around 267 million. This was an increase of 24% compared to last year. Twitter also disclosed that its monthly active users from mobile devices rose even faster, an increase of 29%.

78% of Twitter’s total monthly active users came from mobile devices.

The total number of timeline views for the quarter jumped 15% to 173 billion. Perhaps most importantly, Twitter’s advertising revenue per thousand timeline views rose to $1.60, an increase of 100% compared to last year.

Not only is the number of timeline views growing by 15%, those views are twice as profitable as they were a year ago.

International revenue was another bright spot for Twitter.

Revenue from international sources was 33% of Twitter’s total revenue and rose 168% compared to last year. That’s a big jump, one that suggests Twitter is seeing success with its efforts to grow global reach.

The company also raised its quarterly revenue guidance.

Investors were expecting Twitter to generate around $323 million in revenue next quarter. In yesterday’s earnings release the company stated that it expects to generate between $330 and $340 million in revenue.

Twitter also raised its full-year revenue guidance from between $1.2 and $1.25 billion to somewhere between $1.31 and $1.33 billion. Analysts had been expecting $1.27 billion so this updated guidance was further good news for investors to digest.

To be honest, there wasn’t a whole lot of bad news in the report but it is important to note that Twitter enjoyed a significant bump in usage during the recent FIFA World Cup. While the CEO denied that Twitter’s blowout earnings were caused by the World Cup bump, the company surely enjoyed a nice boost to advertising revenue during the period.

Still, it is a great sign for Twitter that it can effectively capitalize on major global events like the World Cup. It not only points to Twitter’s global reach but also its relevance during major news events.

My primary concern is Twitter’s stock compensation expenses. While the company reported $0.02 in non-GAAP earnings it actually lost $0.12-per-share on a GAAP basis, a loss of approximately $145 million.

This includes $158 million of stock-based compensation. I personally find it alarming that the company spent $158 million on stock-based compensation while generating only $312 million in revenue.

Regardless, it would be very tough to look at this earnings report as anything other than hugely positive for Twitter.

The profitability of Twitter’s advertising business is surging, revenue more than doubled in one year and its user base growing. It should come as no surprise that Twitter stock is surging higher after earnings.

This article is brought to you courtesy of Jay Taylor from Wyatt Research.


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