Twitter (TWTR, Financial) shares fell 4.25% Wednesday afternoon after the company reported first-quarter results ahead of analysts’ expectations early in the morning.
The social media company reported revenues of $665 million, up 21% year-over-year and surpassing $608 million expected by Thomson Reuters analysts. Earnings per share totaled 16 cents, topping expectations of 12 cents. Net income totaled $61 million compared to a net loss of $62 million the previous year, for its second consecutive quarter of GAAP profitability.
Key to driving headline results were 10% audience growth from a year earlier, and soaring ad revenue, up 21% to $575 million. The company attributed improved advertising revenue to better engagement, product features, ad relevance and pricing. Ad engagements were up 69% due to higher demand, increased clickthrough rates and a shift toward video.
One analyst expects spillover from rival Facebook (FB, Financial) to benefit Twitter’s advertising soon.
“A tailwind for Twitter in the near-term in our opinion is the Facebook Newsfeed overhaul, which is forcing publishers and online advertisers to 'dip their toe in the water' on the Twitter platform and start to ramp up ad investments on this platform,” Daniel Ives, chief strategy officer and head of technology research at GBH Insights, said.
Monthly active users of Twitter rose 3% to 336 million, dampened by a flaw in third-party app integration with web browser Safari, which affected roughly 1 million monthly active users, the company said. Twitter credited the increase to organic growth, marketing and product improvement in its email, push notifications and timeline.
For its second-half outlook, Twitter gave a word of caution, telling investors it may find it difficult to continue its pace of comparable-year growth.
“It’s still early in the quarter, we’ve got a big global even in the world cup ahead of us and lots of work to do this quarter,” Twitter founder and CEO Jack Dorsey said on a call with analysts. “We’re also facing tougher comps in the second half of this year as we lap the beginning of our strong business recovery that began in Q3 of last year. As we talked about in February, we continue to believe that our sequential growth rates for total revenue for the remainder of 2018 will resemble those from 2016 more than they will those from last year.”
Twitter posted comparable-year revenue growth of 1% in the fourth quarter of 2016 and 8% in the third quarter.
The company has a price-book ratio of 4.38 and price-sales ratio of 8.99. Investors tracked by GuruFocus who bought Twitter in the fourth quarter were: David Einhorn (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio). Jeremy Grantham (Trades, Portfolio) sold 75% of his stake. None sold out. At least one, Wally Weitz, has reported selling in the first quarter.
Down 33% from a 2013 initial public offering price, Twitter shares traded for $41.65 Wednesday.
Disclosure: Author owns shares of Twitter.
