Twitter’s first quarter as a public company: lots of millions but plenty losses

Popular microblogging platform Twitter this week reported its first quarterly report since going public in November. According to the earnings report, its shares have dropped by 18%, to US$54.18, due to a slow down in user growth.

“Twitter finished a great year with our strongest financial quarter to date,” said Dick Costolo, CEO of Twitter. “We are the only platform that is public, real-time, conversational and widely distributed and I’m excited by the number of initiatives we have underway to further build upon the Twitter experience.”

The company reported a fourth-quarter revenue of US$243-million and earnings per share of US$0.02 (non-GAAP), an improvement on analysts’ predictions of total revenue of US$218-million. While the company showed its quarterly earnings were up 116% from the fourth quarter a year ago, it also reported a net loss of US$511.5-million for the quarter, with a net loss for 2013 of US$645.3 million.

The market has not reacted well to the numbers with the company’s stock dropping since its IPO. According to Sasha Naryshkine, asset manager at Vestact, this isn’t a concern for Twitter.

“Twitter should not be worried what the market reaction is, it is not the company’s job to get anxious one way or another about their business, especially when revenue doubled and some more.”

“It is still difficult to gauge the future profitability of the business whilst they are in growth mode. That is the issue. As such there will be an enormous amount of volatility whilst the business ramps up,” he adds.

The company also reported some impressive operational highlights: a 30% increase in average monthly active users, with 241-million as of December. Twitter also reported that its mobile monthly active users reached 184-million in the fourth quarter of 2013, an increase of 37% year-over-year, representing 76% of its total monthly active users. Timeline views have also reached 148-billion in the fourth quarter of 2013, an increase of 26% year-over-year.

Warwick Business School Associate Professor of Strategic Management Sotirios Paroutis has researched the Twitter for a while now.

“Twitter’s results were a mix of positive news, with revenues and adjusted fourth-quarter earnings per share exceeding analysts’ expectations, and some negatives, with a slow down in the rate of growth of monthly users and record quarterly net losses,” says Paroutis.

Money talks: Advertising and revenues

Since going public, Twitter’s monetising strategy has been under pressure. Much like Facebook, the company must solidify its business and monetisation strategy. The social network reported an advertising revenue per thousand timeline views reached of US$1.49 in the fourth quarter of 2013, an increase of 76% year-over-year. Advertising revenue totalled US$220-million, an increase of 121% year-over-year and according to the report, mobile advertising revenue was more than 75% of total advertising revenue.

The company also made money from other sources. Its data licensing and other revenue totaled US$23-million, an increase of 80% year-over-year. International revenue meanwhile totalled US$66 million, an increase of 200% year-over-year. International revenue was 27% of total revenue.

Dipping stocks on slow growth outlook

The social network reported a net loss of US$511 million in the quarter and is yet to earn any profit. As CNNMoney points out though, “most of the loss was due to employees cashing out their stock-based compensation”.

According to the company it earned US$10-million but it is facing a more worrying problem — slowed user growth. Though Twitter reported a 30% increase in monthly active users for the same time last year, it’s only up 3.9% from the previous quarter.

“In the four prior quarters, the average quarter-over-quarter growth rate was 7.4%, and in 2012 it was 10.3%,” says CNNMoney.

When Twitter went public last November, it raised around US$2-billion, which saw its stock price climb rapidly from its original price of US$26 by 73% in its first day of trading. The company’ stock has been fairly steady since it began trading, making this drop significant. Twitter’s biggest monetisation strategy is its rapidly growing user base. Slowed growth could worry investors considering the company hasn’t turned any profit since its inception.

Twitter itself doesn’t seem too optimistic about first quarter 2014 and its revenues. It projects revenues to be in the range of US$230-million to US$240-million. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is projected to be in the range of US$10-million to US$16-million.

“Stock-based compensation expense is projected to be in the range of $145 million to $155 million excluding the impact of equity awards that may be granted in connection with potential future acquisitions,” said the earnings report.

Its outlook for the full year of 2014 seems more optimistic than the first quarter. Annual revenue is projected to be in the range of US$1.1-billion to US$1.2-billion. Adjusted EBITDA is projected to be in the range of US$150-million to US$180-million. Capital expenditures are projected to be in the range of $330-million to $390-million and stock-based compensation expense is projected to be in the range of US$600 to US$650-million.

“In many areas, these results were above analysts’ expectations – yet, investors have not been impressed sending the share price down from around $66 to as low as $54 in after-hours trading after the results were published,” adds Paroutis.

“Inevitably, the market is evaluating Twitter not in isolation but in relation to Facebook, which posted record quarterly results a few days ago. In other words, while Twitter is doing well, it needs to do better – and faster – to keep its advertisers, users and investors interested – or as its CEO, Dick Costolo, admitted during the call to investors ‘we simply need to make Twitter a better Twitter’.”