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Twitter Disappoints The Market

Posted on Tuesday, May 12th 2015

Twitter (NYSE: TWTR) continues to disappoint the market with their performance. The market is getting anxious about Twitter’s ability to maintain strong financial growth. The disappointing quarterly result announcement and a reducing outlook for the year sent the stock spiraling down. The stock fell 20% soon after their results were accidentally leaked and since then, the stock has been taking a beating.

Twitter’s Financials

First quarter revenues grew 74% over the year to $436 million, missing the Street’s forecast of $456 million. But EPS of $0.07 was ahead of the market’s forecast of $0.04.

By segment, advertising revenues grew 72% to $388 million with mobile advertising revenues contributing 89% of the total advertising revenue. Data licensing and other revenues increased 95% to $48 million. International revenues increased 109% over the year to $147 million.

Among operating metrics, their monthly average users grew 18% over the year to 302 million. At 241.6 million, their mobile monthly average users accounted for 80% of total users.

For the year, Twitter projected revenues of $2.17 billion-$2.27 billion, down from their earlier forecast of $2.3 billion-$2.35 billion. The Street had forecast revenues of $2.3 billion for the year. Twitter expects to end the current quarter with revenues of $470 million-$485 million, falling significantly short of the Street’s forecast of $538 million.

Twitter’s Enhanced Offerings

During the quarter, Twitter continued to enhance their service offerings for both consumers and advertisers. To improve user engagement, they launched a new native video functionality that lets users capture, edit, and share videos from within the Twitter app. As part of their messaging initiative, they added group direct messaging that lets users expand private conversations to a group of as many as 30 Twitter users. They also added a recap feature that shows users a summary of Tweets they would have missed while they were away from Twitter. Finally, they added Instant Timelines feature that allows new users with access to a personalized timeline of Tweets at the time of sign-up.

For advertisers, Twitter added a new analytics homepage and a quick promote feature that simplifies the process of getting best content in front of potential customers for small and medium businesses. They are also improving targeting by tying up with over 1,000 partner audiences to help with improved conversion tracking for performance marketers on web. During the quarter, they announced an ad syndication deal with Flipboard and Yahoo Japan that will help them extend the reach of Promoted Tweets to a larger audience.

Twitter’s Acquisitions

During the quarter, Twitter continued to make several acquisitions. They acquired Periscope, a new video streaming app, for an estimated $100 million. Periscope lets users stream live video directly from their mobile phones.

Earlier this year, they acquired ZipDial, an Indian startup, for an estimated $30 million. ZipDial helps businesses connect with customers who do not have Internet access. Their mobile platform integrates SMS, voice, mobile web, and access to mobile apps to connect offline users with online users. The Bangalore-based company lets users call a special toll-free number for a particular business. They will then send updates and content to the users through phone calls, text messages, or apps. The move will help Twitter expand their reach in emerging markets.

More recently, they acquired digital marketing firm TellApart for an estimated $532 million. Burlingame-based TellApart tracks web browsing behavior of customers and tailors ads accordingly. Their customer list includes names like Neiman Marcus, Brookstone, Pottery Barn, and Sur la Table. Analysts believe that Twitter does not have a very sophisticated ad measurement tool which makes advertisers question the effectiveness of ads placed on Twitter. The TellApart acquisition will help Twitter strengthen their advertising offerings.

Twitter’s stock is trading at $37.59 with a market capitalization of $24.6 billion. It touched a high of $55.99 in October last year.

Analysis

Twitter is not wowing the market with its monetization as Facebook is doing. Of the 1.44 billion monthly active users reported last quarter, Facebook had a mobile-only monthly active user base of over 581 million. For the recently reported quarter, Facebook saw mobile ad revenues grow 85% to $2.4 billion. This disappoints the market, signaling that the business model and the effectiveness and attractiveness of the Twitter platform for advertisers is not as robust. Facebook, with its intense engagement levels, deep personalization capabilities, in contrast, is becoming increasingly more sophisticated in delivering value to their advertisers.

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