Twitter (TWTR, Financial) posted solid numbers during the first quarter, adding 9 million monthly active users compared to the previous quarter – its best performance in nearly three years.
The last time Twitter managed to add more than 8 million users was in the first quarter of 2014 when the company added 14 million monthly active users to its fold. But things stayed nearly flat after that as Twitter took the next seven quarters to move from 302 million to 319 million at the end of the fourth quarter.
User base addition picked up speed during the first quarter of this year, and Twitter will be hoping to see that momentum continue as the company gets ready to report its second-quarter results on July 27 before the market opens.
The better-than-expected first-quarter performance did help the stock recover from the downward trend, and great second-quarter user base growth will help the stock price in a big way, should it happen.
“Cleveland Research, a boutique equity research firm, said it sees indications that Twitter's advertisers and partners are encouraged by user growth on the site, along with changes in ad delivery and progress in Live content. 'This is the best relative feedback in our Twitter research in two-plus years, suggesting some potential bottoming in fundamentals; we look for follow-through improvement in our research for turning more near-term positive,' the research firm said.”–CNBC
If you have been reading my coverage of Twitter I have been consistent with my thesis that as long as Twitter manages to increase its user base, all other metrics will fall into place. The positive feedback is certainly a good thing, but it wouldn’t have come if Twitter didn’t show that it’s still capable of expanding its user base.
Consensus Wall Street expectation is second-quarter 2017 earnings per share of 5 cents and revenue of $535.61 million. The market is expecting the revenue decline to continue during the second quarter as well.
The market got it absolutely wrong during the first quarter as Twitter beat both the top-line and bottom-line numbers by wide margins. While Wall Street expected EPS of 1 cent per share against revenue of $511.9 million, Twitter posted EPS that was 10 cents more than expectation and revenues of $548 million.
The pleasantly unexpected result and user base growth were the two main factors that allowed Twitter’s stock price to recover after first-quarter results were announced. If Twitter manages to stay in line with or above the expectation while keeping its user base growth momentum going during the second quarter, Twitter’s stock price should continue to edge up slowly until third-quarter numbers are released.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
