Why, Exactly, Twitter Stock Ripped Off of Earnings
Date Published: 2019-04-23
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Twitter stock ripped off of earnings reported on 4-23-2019 before the market opened with a surprise beat on several levels. But, there may be some risk lurking.
Twitter (TWTR) reported revenue of $787 million versus analyst expectations of $773.5 million and adjusted EPS of $0.37 versus analyst expectations of $0.15. Advertising revenue climbed to $679 million, a 18% year-over-year rise. While higher revenue on better cost controls led to the EPS beat, the real reason the stock is ripping so hard goes much deeper than the financials.
Monthly active users (MAUs) rose to 330 million, up from 321 million the prior quarter. While the 330 million number is lower than the same period last year (336 million), Wall Street had all but accepted Twitter's fate of a shrinking or stable, at best, ecosystem with expectations for MAUs coming in at 319 million. If the Twitter story goes from a "engagement " story (higher Daily Active Users (DAUs) with MAUs shrinking means engagement is ring but growth is not), to a growth story, all of a sudden the multiples on earnings and sales will see an expansion. If we take EPS higher than expected and a multiple expansion, then we get what we see today -- a serious rip.
Twitter noted that the improvement in all of the metrics is due to the companies diligent work on making the platform less toxic. The company noted that the result of weeding out spam and abusive posts and targeting ads better brought about this turnaround. If true, then Twitter may be at the start of new a growth cycle and that would be an incredible reversal of fortunes, but let's not get the cart out in front of the horse just yet. While MAU growth is the gem in the report, investors won't see that again because Twitter will stop reporting the metric as of now -- that doesn't sound like a company that is willing to show off user growth quite yet.
Further, the company's guidance for next quarter was between $770 million and $830 million, so that mid point of $800 is significantly lower than Wall Street estimates of $818 million. Twitter may be a wonderful turn around story, and if it is, it could head back to its long-time all-time high of over $80. But with a refusal to report MAUs and guidance below the street, maybe we don't quite know direction of the trend, if the trend is one quarter. For now, the Twitter bulls have reason to cheer, and the stock has reason to rise.
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The author has no position in Twitter at the time of this writing.
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