It has been about a month since the last earnings report for Twitter (TWTR). Shares have added about 8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Twitter due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Twitter Q1 Earnings Beat, User Growth Aids Top Line
Twitter reported first-quarter 2020 non-GAAP earnings of 11 cents per share that beat the Zacks Consensus Estimate by 10%. However, the figure decreased 70.3% year over year.
Revenues grew 2.6% year over year to $807.6 million, which beat the Zacks Consensus Estimate by 4.5%.
Shares were up more than 4.9% in pre-market trading.
Average monetizable daily active users (mDAU) were 166 million in the reported quarter compared with 134 million in the year-ago quarter and 152 million in the previous quarter.
Average U.S. mDAU was 33 million compared with 28 million in the year-ago quarter and 31 million in the previous quarter. Moreover, average international mDAU was 133 million compared with 105 million in the year-ago quarter and 121 million in the previous quarter.
User growth was primarily driven by frequent discussions on the burning issue of coronavirus and an improving product experience. The company’s success in providing relevant content to people’s Home timelines and notifications contributed to mDAU growth.
The company launched a Fleets button as an experiment in Brazil to provide a new way to start conversations by sharing momentary thoughts. Fleets disappear after 24 hours and do not get Retweets, Likes, or public replies.
Topics, launched in the fourth quarter, 2019 also drove growth. Twitter stated that as of Mar 31, 2020, there were more than 2,200 Topics that people could follow in six languages with new Topics being added every week compared with 1,700 topics available in the previous quarter.
Lists, which makes it easier for people to create and share timelines about the things that matter to them, improved engagement. In the first quarter, the company made it easier to connect to interests on Twitter by allowing users to see a ranked version of most relevant Tweets in a List.
Previously the Tweets in a List were only viewable in reverse chronological order.
Twitter has been focusing on reducing abuse on its platform. The company has improved its ability to proactively identify and remove abusive content from the platform. The company has removed more than 1,100 misleading and potentially damaging tweets since Mar 18.
Additionally, Twitter updated its strategy for monitoring tweets during the outbreak, which includes reviewing the rules and considering the ways in which it may need to evolve to account for new account behavior during the quarter, which is likely to have reduced abuse on the platform.
Moreover, the company also launched over 30 Health updates to help people in finding credible information on its platform in an effort to reduce abuse, eliminate misinformation and protect the integrity of election-related conversations on the social platform.
U.S. revenues (57.9% of revenues) increased 8% year over year to $468 million. International revenues (42.1% of revenues) decreased 4% to $339 million due to earlier impact in the quarter from coronavirus outbreak in Asia Pacific (APAC).
Japan remained the company’s second-largest market, contributing $131 million or 16.2% of total revenues in the reported quarter.
Advertising revenues improved 0.4% to $682.19 million. U.S. advertising revenues totaled $381 million, up 5% year over year.
International ad revenues declined 5% to $301 million due to coronavirus-led business lockdown in APAC. Nonetheless, the company witnessed slight recovery in APAC at the end of the quarter, particularly in performance-based ad campaigns.
Ad engagements increased 25% 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, First View, and Promoted Trends ad formats.
However, cost per engagement (CPE) decreased 19% year over year due to decrease in price for like-for-like price feature across most ad formats and lower demand in March.
Data licensing and other revenues increased 17% from the year-ago quarter to $125 million.
Twitter’s total costs and expenses were $815 million, up 18% on a year-over-year basis.
Adjusted EBITDA declined 27.4% year over year to $211.1 million.
The company reported GAAP operating loss of $7.4 million against GAAP operating income of $93.9 million in the year-ago quarter.
As of Mar 31, 2020, Twitter had $7.7 billion in cash, cash equivalents and marketable securities. This includes gross proceeds of $1 billion from a convertible note issuance in March related to Twitter’s recent partnership with Silver Lake, which the company will use in part to finance a stock repurchase of up to $2 billion over time.
In the first quarter, adjusted free cash flow was $126 million compared with $271 million in the year-ago quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted -64.63% due to these changes.
At this time, Twitter has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Twitter has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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