Twitter Tops Sales, User Growth Estimates in Second Quarter

Jul 29, 2014 6:33 pm ET

(Updates with CEO comment in the 11th paragraph.)

July 29 (Bloomberg) -- Twitter Inc.’s second-quarter revenue and user growth topped analysts’ estimates, sending its shares soaring more than 35 percent.

The microblogging company’s active membership in the quarter reached 271 million, with year-over-year growth at 24 percent, compared with 25 percent in the prior period, Twitter said in a statement today. That exceeded analysts’ projections of 267 million monthly active users for the quarter, according to data compiled by Bloomberg. Sales more than doubled to $312.2 million, exceeding the $282.8 million average estimate.

The San Francisco-based company is maintaining its rate of attracting new members after reporting two straight quarters of decelerating user growth. The slowdown, coming so soon after Twitter’s November initial public offering, had stoked investor concerns that the company’s fastest sales growth was behind it. Chief Executive Officer Dick Costolo responded by gutting Twitter’s executive ranks, including replacing his chief financial officer and parting ways with his operating chief.

“People who were negative on the company and on the stock now have reason to reconsider and re-evaluate,” said Scott Kessler, an analyst at S&P Capital IQ. “Twitter has momentum in its business.”

Shares jumped as high as $52.48 in extended trading, after rising 1.8 percent to $38.60 at the close. The stock, which closed at a record of $73.31 on Dec. 26, had plunged 47 percent since then on concerns that Twitter wasn’t growing fast enough to justify its valuation. The company is among the most expensive in technology based on projected 2014 sales.

Net Loss

Twitter’s net loss widened to $144.6 million, or 24 cents a share, from $42 million a year earlier. Excluding some items, the company reported a 2 cent profit, compared with the 1 cent loss estimated by analysts polled by Bloomberg.

People viewed their Twitter timelines more often, with 173 billion views, up from 157 billion in the prior quarter.

For the current quarter, Twitter said revenue will be $330 million to $340 million, exceeding analysts’ average estimate of $323.1 million. The company raised its full-year sales forecast to $1.31 billion to $1.33 billion, up from an April projection of $1.2 billion to $1.25 billion.

“The company appears to have allayed investor fears that they can drive user growth and accelerate top revenue growth,” Paul Sweeney, an analyst at Bloomberg Intelligence, wrote in an e-mail.

Big Reach

Twitter said it engaged more users over the quarter because of new tools, such as real-time scoring and voting ballots around the World Cup and new user profiles that mimicked the look of Facebook Inc. Twitter said it was also able to add more capabilities for advertisers and expand that business into more countries.

In an effort to emphasize Twitter’s reach, Costolo said on today’s earnings call that the service is larger than the monthly active users on its main product. Some people view parts of the site without logging in, he said.

“The size of our audience on our owned and operated properties is two to three times that of just our monthly active user base, which we believe ranks us among the top 10 largest digitally connected audiences in the world,” he said.

Easier Use

He emphasized Twitter will adjust its product to make it easier for new users to understand right away, and to cater to people who want to experience live events like the World Cup. Because of World Cup-specific products Twitter created, there were 6.5 billion views of tweets on and off Twitter during a Germany-Brazil game.

Mobile advertising was 81 percent of total ad revenue in the second quarter, Twitter said today. International revenue more than doubled, making up a third of total sales.

Twitter said the frequency of its ads in the service is relatively low compared to others in the industry, so it has plenty of room to increase the number of promotions.

Twitter rival Facebook also grappled with investor questions about its business shortly after its May 2012 IPO, causing its stock to slump. The Menlo Park, California-based social network has since quelled the concerns by moving swiftly into mobile promotions, which now make up the majority of its ad revenue.

Facebook’s stock began reviving after a strong set of earnings results in July 2013 spurred its shares to rise 30 percent the next day. Last week, the company’s stock surged to a record after it posted a 61 percent second-quarter revenue increase and net income more than doubled.

Board Questions

Costolo has faced questions from Twitter’s board about how he planned to stem user growth issues, people familiar with the discussions have said. The company this month replaced CFO Mike Gupta with former Goldman Sachs Group Inc. banker Anthony Noto, who helped take the company public. It was the fourth major change among Costolo’s top lieutenants this year, after the exits of COO Ali Rowghani, head of engineering Christopher Fry and vice president of consumer products Michael Sippey.

In April, Costolo hired Google Inc. maps executive Daniel Graf as the new vice president of consumer products, followed by the May appointment of engineering chief Alexander Roetter, who was already at the company. The COO role is going unfilled.

To diversify revenue while it seeks to rev up user growth, Twitter has expanded its ad business beyond its site so that membership issues take less of a toll on revenue. The company now distributes ads to about 1 billion smartphones and tablets through a mobile-advertising exchange it acquired last year called MoPub Inc.

Deals Streak

This month, Twitter also agreed to pay almost $100 million to acquire TapCommerce, which targets people on mobile phones or tablets with ads for items they’ve expressed interest in buying around the Internet, urging them to complete the purchase. Twitter also bought CardSpring Inc., which will help shoppers secure deals for items they see in the microblogging service’s ads.

Twitter is still on track to enlarge its digital advertising. The company’s share of worldwide digital ad revenue is estimated to rise to 0.8 percent this year, up from 0.5 percent last year, according to EMarketer Inc. Its slice of digital mobile advertising is set to increase to 2.8 percent this year from 2.4 percent last year, according to the researcher. In total, digital ad spending is projected to reach $140 billion this year, said EMarketer.

Noto said on the conference call that Twitter shouldn’t be categorized like other technology companies because it isn’t growing by disrupting an existing business, but by adding a new way of communication.

“I wouldn’t try to characterize it as a media company or a technology company,” Noto said. “We’re using a very simple format with a very complicated technology to be able to become the largest information network in the world.”