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Twitter (TWTR) Q3 Earnings Miss, User Growth Aids Top Line

Zacks Equity Research

Twitter TWTR reported third-quarter 2019 non-GAAP earnings of 17 cents per share that missed the Zacks Consensus Estimate by three cents and down 19% year over year.

Revenues grew 9% year over year to $823.7 million that lagged the Zacks Consensus Estimate of $876 million.

Twitter stated that the top line was weaker than expectation due to product issues and higher-than-expected seasonality. Issues related to its legacy Mobile Application Promotion (MAP) product and problems with certain personalization and data settings affected revenues by more than 3%.

Moreover, July and August were significantly weak due to a relatively lighter slate of big events and launches. This negatively impacted advertising revenues. However, year-over-year advertising revenue bounced back to double-digit growth globally in September.

User Details

Average monetizable daily active users (mDAU) were 145 million in the reported quarter compared with 124 million in the year-ago quarter and 139 million in the previous quarter.

Twitter, Inc. Price

Average U.S. mDAU was 30 million compared with 26 million in the year-ago quarter and 29 million in the previous quarter. Moreover, average international mDAU was 115 million compared with 98 million in the year-ago quarter and 110 million in the previous quarter.

Twitter has been focusing on reducing abuse on its platform. During the quarter, the company launched author-moderated replies in the United States, Canada and Japan. Notably, author-moderated replies give authors the ability to “hide” replies in their conversation thread.

The company also improved its ability to proactively identify and remove abusive content on the platform. Notably, more than 50% of the tweets removed for abusive content during the quarter was taken down without a bystander or first-person report. This was an improvement from 43% in the second quarter and 38% in the first quarter.

Revenue Details

U.S. revenues (57% of revenues) increased 10% year over year to $465.4 million. International revenues (43% of revenues) were up 7% to $358.3 million.

Japan remained the company’s second-largest market, contributing $129 million, or 16% of total revenues in the reported quarter.

Advertising revenues increased 8% to $702.3 million. U.S. advertising revenues totaled $384.5 million, up 11% year over year. International ad revenues grew 5% to $317.7 million.

Ad engagements increased 23% year over year primarily benefiting from increased ad impressions driven by audience growth and improved clickthrough rates (CTR) across most ad formats.

Video ad formats continued to show strength, particularly the company’s Video Website Card and In-Stream Video Ads.

However, cost per engagement decreased 12% year over year due to unfavorable mix shift from MAP to video ad formats (which have lower CPEs) and price decreases across most ad formats.

Data licensing and other revenues increased 12% from the year-ago quarter to $121.5 million driven by solid performance of data enterprise solutions (DES).

Twitter’s total costs and expenses were $780 million, up 17% on a year-over-year basis.

Adjusted EBITDA decreased 11% to $262.8 million. GAAP operating income dropped 51.9% from the year-ago quarter to $44.1 million.

Guidance

For fourth-quarter 2019, total revenues are expected between $940 million and $1.01 billion. The Zacks Consensus Estimate for revenues is currently pegged at $821 million.

Moreover, operating income is expected between $130 million and $170 million.

For fiscal 2019, capital expenditures are expected to be at or near the low end of the company’s previous guidance of $550-$600 million.

Twitter also expects full-year headcount growth to be slightly above 20%.

Zacks Rank & Other Stocks to Consider

Currently, Twitter has a Zacks Rank #2 (Buy).

NIC EGOV, Stoneridge SRI and Vonage Holdings VG are a few other top-ranked stocks in the broader computer and technology sector. All three sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While NIC and Stoneridge are set to report quarterly results on Oct 30 and 31, respectively, Vonage Holdings is set to report on Nov 6.

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