Despite Q3 Decline, Twitter Expects Revenue Growth, Profitability In The Coming Quarters
Twitter (NYSE:TWTR) recently posted its Q3 results, seeing a continued decline in revenues. However, the company stated that it is poised to report revenue growth in the coming quarters as it executes its sales strategy and improves its direct ads format. Furthermore, it reported record high EBITDA margins during the quarter. As a result of these positive announcements, the company’s stock rallied by over 15% in trading on Thursday. The key takeaways from the results are as follows:
- The company’s total revenue declined by 4% year-over-year (y-o-y) to $590 million as U.S. advertising revenue declined by 18% y-o-y to $264 million. As a result, total advertising revenues declined by 8% to $503 million.
- Twitter’s adjusted EBITDA increased by 14% y-o-y to $207 million on the back of a decline in R&D and marketing costs due to a lower headcount, which resulted in a strong 35% adjusted EBITDA margin. Additionally, its net loss narrowed to $21 million in the quarter, indicating that it could report a profit in the coming quarters.
- In terms of users, Twitter’s average monthly active users (MAUs) grew 4% y-o-y to 330 million in Q3 2017. Additionally, Twitter’s U.S. MAUs grew by 4% to 69 million, while the international subscriber base grew by 4.4% y/y to 261 million.
- Advertising metrics continued to report improvement as total ad engagements increased 99% year-over-year, driven by a shift in mix toward video ad impressions, higher click-through rates, better targeting, and ad relevance. Average Cost Per Engagement decreased 54% year-over-year, reflecting a higher mix of video ad engagements.
- In Q3, the company announced 30 live-streaming partnerships, including 10 international deals during the quarter. The company continues to strengthen its video content portfolio in international markets and has announced over 35 video partnership deals in Asia Pacific.
- Video consumption has been growing tremendously over the past few quarters on Periscope as well as on the Twitter platform with the launch of auto-play videos. During the quarter, the company streamed 96 million hours of live user-generated content via Periscope. However, it remains to be seen how this content can be monetized in the future.
Our $16 price estimate for Twitter is around 20% below the market price following the rally.
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