Twitter:Positive Revenues And Revenue Per User Despite Slowing Growth Metrics

Posted: Feb 5 2014, 5:35pm CST | by , in News | Technology News

Twitter:Positive Revenues and Revenue Per User Despite Slowing  Growth Metrics
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Twitter announced its December quarter results, the first one after becoming a public company. It easily beat revenue estimates, increased revenue per user and Timeline above what anyone should have been expecting and generated a non-GAAP profit of $0.02 (this can be negative if investors start looking at a PE multiple but that would be a mistake). However there were a number of slowing or negative growth metrics that were unexpected.

Positives for the quarter

  • Total revenue of $243 million increased 116% year over year, was far ahead of the Street’s $218 million projection and showed an acceleration from September quarter’s 105% growth
  • Advertising revenue of $220 million was 90% of revenue and increased 121% year over year
  • Ad revenue per U.S. Timeline views increased from $2.58 per thousand in the September quarter (q/q) to $3.80
  • Ad revenue per International Timeline views increased $0.36 per thousand (q/q) to $0.60
  • Revenue per U.S. user increased from $2.10 (q/q) to $2.89
  • Revenue per International user increased from $0.23 (q/q) to $0.34
  • Non-GAAP Gross margin increased significantly from 64.9% in the September quarter to 72.5% in the December quarter
  • Generated non-GAAP EPS of $0.02

Negatives for the quarter

  • U.S. monthly active users only increased from 53 million in the September quarter to 54 million. It looks like U.S. user growth is hitting a ceiling.
  • U.S. Timeline use declined quarter over quarter from 43.2 billion to 41 billion in the December quarter. Twitter is experimenting with changes that could be negatively affecting this metric which could turn out to be positive in the long-run.
  • International monthly active users increased from 179 million in the September quarter to 187 million, up 33% year over year, but this growth rate continues to decline.
  • International Timeline use declined quarter over quarter from 115.6 billion to 107 billion. Again Twitter is experimenting with Timelines which could be positive in the long-run but it does create questions about long-term usage growth.

Overall Twitter did a great job increasing its adverting monetization both in the U.S. and International but growth metrics for users and Timeline either slowed more than expected or turned negative.

Valuation is still stretched even with 2014 revenue guidance being conservative

Twitter gave 2014 revenue guidance of $1.15 to $1.2 billion. Since this should be on the conservative side so that the company can beat its quarterly revenue guidance and increase the yearly number going through the year. With that expectation lets use $1.4 billion for the actual result.

In the press release details the company has the share count at 612 million and I calculate that when all options and Restricted Stock Units (RSUs) are included the share count should be 697 million.

At the $55 share price that the stock is at in after hours trading (down $11) the market cap is $38.4 billion, which means the shares would be trading at 27x revenue. Even at $55 the shares are pricing in a lot of good news and growth. While the company should be able to increase revenue per user and Timeline unless the company can reaccelerate user growth the shares will have a difficult time increasing meaningfully.

Follow me on Twitter @sandhillinsight. You can find my other Forbes posts here.

Source: Forbes

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