Twitter, Inc. (TWTR) reported fourth quarter and full year 2014 results. The company reported fourth-quarter loss of 15 cents per share, narrower than the Zacks Consensus Estimate of a loss of 21 cents. Twitter reported earnings of 12 cents in the quarter after excluding stock-based compensation, amortization of acquired intangible assets, non-cash interest expense related to convertible notes and income tax effects related to acquisitions.
Shares rose 9.06% ($3.75) in afterhours trading following the results.
Revenues
Revenues soared 97% year over year to $479 million, which comfortably beat the Zacks Consensus Estimate of $451 million. The strong year-over-year growth was driven by a 97% surge in advertising revenues (90.2% of revenues).
Robust growth in advertising revenues was driven by a 78% year-over-year surge in ad engagements, which in turn reflected higher ad load and increase in total ad requests. Timeline views increased 23% year over year to 182 billion.
Advertising revenue per thousand timeline views jumped 60% year over year to reach $2.37 in the reported quarter. Mobile advertising revenues were 88% of total advertising revenue in the quarter.
Average monthly active users (MAUs) were up 20% on a year over year basis to 288 million at the end of the quarter. However, Twitter lost 4 million net users owing to the rollout of the iOS8 integration. Average mobile MAUs represented around 80% of total MAUs. Twitter added 4 million net new users in the reported quarter and 47 million in 2014.
Data licensing and other revenues soared 105% year over year to $47 million. In the quarter, Twitter formed a partnership with International Business Machines Corporation (IBM) for extending the data to enhance enterprise decision making. This partnership is expected to be a key growth driver going forward.
Twitter earned 34% of its revenues from international markets. International revenues rose a phenomenal 149% year over year to $164 million in the reported quarter.
During the quarter, the company launched a feature that can enable people to share a tweet privately via Direct Messages. This apart the company also introduced the novel Audio Card that allows users to explore and listen to audio directly on Android and iOS devices.
The company launched a number of advertiser tools in the quarter including the likes of tailored audiences for mobile apps that allow advertisers to form targetable audience segments on the basis of mobile app activity. Twitter also unveiled a couple of new mobile targeting options.
During the quarter, Twitter continued with the international expansion of Twitter ads to 13 additional markets across the globe while its self serve ad products expanded to 8 new markets in the quarter, taking the tally to 28 countries.
Margins
Adjusted earnings before interest, tax, depreciation & amortization (EBITDA) were $141.5 million compared with $44.7 million in the year-ago quarter.
Total cost & expenses (excluding amortization of acquired intangible assets) declined to $577.2 million from $752.3 million in the year-ago quarter. This year-over-year decline in costs was due to reduction in research & development (down $213.1 million) and general & administrative (down $12.2 million) expenses in the quarter.
Twitter reported an operating loss of $124.5 million (including stock-based compensation but excluding amortization of acquired intangible assets) compared with a loss of $508.2 million in the year-ago quarter.
Net loss (excluding stock-based compensation, amortization of acquired intangible assets and income tax effects related to acquisitions) was $125.3 million or 20 cents compared with a loss of $511.5 million or $1.41 in the year-ago quarter.
Balance Sheet & Cash Flow
At the end of Dec 31, 2014, cash and cash equivalents (short-term investments) were $3.6 billion compared with $2.2 billion at the end of Dec 31, 2013. Cash flow from operations was $43.3 million in the reported quarter while capital expenditure amounted to $69 million.
Outlook
Twitter projects revenues to be in the range of $440 million to $450 million for the first quarter of 2015. The Zacks Consensus Estimate is currently pegged at $453 million.
Adjusted EBITDA is projected to be in the range of $89 million to $94 million in the current quarter. The company expects stock-based compensation expense to be in the band of $160 million to $170 million. This is excluding the impact of any equity awards in relation to future acquisitions.
For 2015, revenues are projected to be in the range of $2.3 billion to $2.35 billion. The Zacks Consensus Estimate coincides with the lower end of management’s guidance.
Adjusted EBITDA is projected to be in the range of $550 million to $575 million for the full year. Capital expenditures are estimated to be in the range of $500 million to $650 million. The company expects stock-based compensation expense for 2015 to be in the range of $700 million to $750 million. This is excluding the impact of any equity awards in relation to future acquisitions.
Our Take
We believe that new products and services will continue to attract users in the long run. The increasing mobile user base should drive mobile advertising revenues. Per Gartner, mobile advertising spending market is expected to grow to $41.9 billion by 2017. Twitter is well positioned to benefit from this higher spending due to its innovative product portfolio that continues to attract advertisers (its primary revenue source).
The company’s recent partnerships with news-reading app Flipboard and Yahoo Japan to expand its advertising business beyond social media subscribers are also positives.
In addition, it is also looking to expand in emerging markets like India with the prospective buyout of a startup, ZipDial. The company was established in 2010 and offers mobile marketing and analytic services. The acquisition will not only help Twitter acquire a major interface between the consumer and business segments but will also help promote its own user base.
In addition, Twitter has been endeavoring for quite some time to enhance its operational sphere in order to seek revenue sources other than advertising.
Last year, the company launched its much-awaited “Twitter Buy” to enable customers to search for products of their choice and buy them on its platform.
Most recently, the company started a new advertising distribution program to display tweet-based ads, known as Promoted Tweets, on third-party mobile apps and websites, which are likely to aid in increasing ad revenues.
We believe that the development of additional services on its platform will drive top-line growth, going forward. However, rise in costs remains a concern as Twitter continues to invest in product development, acquisitions as well as sales and marketing. Intensifying competition from Facebook, Inc. (FB) and Google Inc. (GOOGL) are the other major headwinds.
Currently, Twitter has a Zacks Rank #3 (Hold).
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