Why higher user engagement drove Twitter’s robust Q2 earnings

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Why higher user engagement drove Twitter's robust Q2 earnings (Part 1 of 5)

Twitter reports better-than-expected Q2 2014 earnings

Twitter (TWTR) recently reported its Q2 2014 earnings. Both its revenues of $312 million and earnings per share of $0.02 per share were better than analysts’ expectations of $283 million and earnings per share of -0.01 per share, respectively. The earnings surprise pleased investors, which pushed Twitter’s stock up 30% in the after-market hours of trading. Total revenues increased 124% in the June quarter over the corresponding quarter a year ago. This revenue growth is the best among social networks like Facebook (FB), LinkedIn (LNKD), and Yelp (YELP).

Although Twitter’s monthly active users or MAUs increased 24% over the corresponding quarter last year, Twitter said its user engagement is driving its revenue growth. Let’s see why this is happening.

Twitter credited the increase in user engagement to the FIFA World Cup

As the chart above shows, Twitter’s average advertising revenue per thousand timeline views doubled from $0.80 in Q2 2013 to $1.60 in Q2 2014. This is the main parameter that Twitter uses to measure user engagement. During the conference call to announce earnings, Twitter’s management mentioned that its strategy to tailor user experiences for each individual match of the recently held World Cup helped it increase user engagement.

Twitter’s expecting 100% revenue growth for 2014

Twitter mentioned that it’s expecting 100% revenue growth for fiscal 2014 as a whole. The company is also expecting margin expansion of 500 to 600 basis points. If Twitter continues to see this growth, it will benefit exchange-traded funds or ETFs like the  Renaissance IPO ETF (IPO), which has significant exposure to Twitter.

Continue to Part 2

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