Twitter (TWTR) reported disappointing fourth-quarter fiscal 2013 results. In its first quarterly earnings since Initial Public Offering (IPO), Twitter reported loss of $1.41 per share, which was worse than 7 cents posted in the year-ago quarter.
Excluding stock-based compensation, amortization of acquired intangible assets and income tax effects related to acquisitions, earnings were 2 cents per share in the quarter.
Moreover, the company reported that user growth has slowed over the last three months (added 9 million) that failed to impress investors. Shares plunged 17.90% ($11.81) in after-hours trading.
Revenues
Revenues surged 116.2% year over year and 44.0% quarter over quarter to $242.7 million and were well ahead of the Zacks Consensus Estimate of $212.0 million. The strong growth was driven by 121.0% year-over-year and 43.0% quarter-over-quarter jump in advertising revenues (90.6% of revenues).
Robust growth in advertising revenues was driven by 600.0% year-over-year and 70.0% quarter-over-quarter surge in ad engagements. Advertising revenue per thousand timeline views increased 76.0% year over year to reach $1.49 in the fourth quarter.
Mobile advertising revenues were more than 75.0% of total advertising revenue in the quarter, up from 55.0% in the year-ago quarter.
Data licensing and other revenues soared 80.0% year over year to $23.0 million (including $8.0 million revenues from MoPub) in the reported quarter. Excluding MoPub (acquisition completed during the quarter), revenues increased 20.0% on a year-over year basis.
Twitter earned 27.0% of revenues from international markets. Revenues rose a phenomenal 200.0% year over year to $66.0 million in the reported quarter.
Average Monthly Active Users (MAUs) increased 30.0% from the year-ago quarter and 4.0% on a quarter-over-quarter basis to 241 million. Mobile MAUs (76.0% of total MAUs) jumped 37.0% year over year to 184 million.
U.S. MAUs reached 54 million, up 21% from the year-ago quarter and 3.0% sequentially. International MAUs were 187 million, up 33% year over year and 4.0% quarter over quarter.
Timeline views increased 26.0% year over year but decreased 7% sequentially to 148 billion. The sequential decline was primarily attributed to a number of product changes that were designed to improve user interaction per timeline view.
Twitter launched a number of new products for advertisers during the quarter. These include TV Conversation Targeting, Tailored Audiences, Conversion Tracking and Promoted Accounts in Timeline.
The company launched self-serve advertising platform for giving ready access to small and medium-sized businesses in the U.K., Ireland and Canada.
To boost customer engagement, Twitter launched a number of new product enhancements including media forward timeline, in-line social actions, Twitter Alerts and custom timelines. As a result, user interaction in the form of favorites and reTweets improved more than 35.0% on a year-over-year basis.
The company also added features that allowed users to send and receive photos via direct messaging and swipe between timelines. As a result, messaging increased more than 25.0%, while search soared 120.0% on a year-over-year basis in the fourth quarter.
Twitter also expanded features of its mobile app Vine by adding 19 new languages on both Apple’s (AAPL) iOS and Google’s (GOOG) Android platform during the fourth quarter.
Margins
Adjusted Earnings before interest, tax, depreciation & amortization (EBITDA) was $44.7 million as compared with $17.6 million in the last quarter.
Total cost & expenses (excluding amortization of acquired intangible assets) surged to $746.8 million from $117.2 million in the year-ago quarter. This massive year-over-year growth in costs was primarily due to higher research & development (up $354.2 million), sales and marketing (up $147.2 million) and general & administrative expense (up $52.6 million) in the last quarter.
Twitter reported operating loss of $504.1 million (including stock-based compensation but excluding amortization of acquired intangible assets) as compared with loss of $5.0 million in the year-ago quarter.
Net loss (including stock-based compensation but excluding amortization of acquired intangible assets and income tax effects related to acquisitions) was $500.4 million as compared with a loss of $4.2 million in the year-ago quarter.
Loss of 82 cents per share was much wider than the Zacks Consensus Estimate of a loss of 10 cents and loss of 3 cents in the year-ago quarter.
Balance Sheet & Cash Flow
At the end of Dec 31, 2013, cash and cash equivalents (short-term investments) were $2.23 billion compared with $424.9 million at the end of Dec 31, 2012. Cash used from operating activities were $2.9 million as compared with cash flow of $5.4 million at the end of the last quarter.
Outlook
Twitter project revenues to be in the range of $230.0 to $240.0 million for the first quarter of 2014, much better than the Zacks Consensus Estimate of $206.0 million.
Data licensing is expected to remain flat on a year-over-year basis in the first quarter due to seasonal trends. Adjusted EBITDA is projected to be in the range of $10.0 to $16.0 million for the current quarter.
Revenues are projected to be in the range of $1,150.0 to $1,200.0 million for fiscal 2014, much better than the Zacks Consensus Estimate of $1,103.0 million.
Adjusted EBITDA is projected to be in the range of $150.0 to $180.0 million for the full year. Capital expenditures are projected to be in the range of $330.0 to $390.0 million.
Our Take
Although user growth rate will remain a concern in the near term, we believe that new products and services will attract new customers, going forward. Twitter’s ability to attract more advertising revenues, despite facing significant competition from Facebook (FB) and market leader, Google, will be something to watch for in the near term.
Moreover, as spending on online advertising is expected to increase manifolds compared to traditional media, we believe that Twitter has massive growth opportunity, due to its strong mobile products.
However, higher costs and continuing investments on product development will hurt profitability, going forward.
Currently, Twitter has a Zacks Rank #3 (Hold).
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