Twitter, Inc. (NYSE: TWTR) yesterday reported 4Q18 earnings and revenue that surpassed analysts’ estimates. Despite the beat, the stock closed at $30.41, down 11% from the prior close. There were two main reasons for the decline: soft guidance and a forecast of a 20% increase in expenses. Another prominent measure, i.e., Monthly Active Users (MAU) data met analyst expectations. However, the company announced that it would start reporting the user data in a different format as discussed below.
Dull 1Q19 forecast turns Twitter weak
San Francisco, California-based Twitter reported fiscal 2018 fourth-quarter revenues of $909 million, up 24% from $717 million in the similar period last year.
For the quarter ended December 2018, the social media platform generated earnings of $255 million or $0.33 per share, compared with $91 million or $0.12 per share in the year-ago period. Excluding charges, earnings increased to $0.31 per share in the recent quarter. Refinitiv analysts had expected Twitter to post earnings of $0.25 per share on revenues of $869.50 million.
During the quarter expenses grew 13% to $704 million due to an increase in the employee count and “revenue share costs related to its video offerings.”
The company’s monthly user base (MAU) declined to 321 million, from 326 million reported in the prior-year period. However, the published figures met FactSet Consensus estimates. Additionally, for eight quarters in a row, Twitter has posted an increase in daily active users (DAU). Chief Financial Officer Ned Segal expects further growth in daily active users as not even half of MAUs login to the site daily.
Twitter clarified that fewer email alerts, departure from SMS service in partnership with telecom firms, and termination of fake accounts contributed to the decline in the monthly user base.
Notably, Twitter did not meet MAU forecasts in the past two quarters. The company’s active response to minimize the spread of fake messages through its platform and termination of thousands of Russia, Iran, and Venezuela-based accounts that were used to spread false information during the 2018 US mid-term election has resulted in a sharp decline in MAU forecasts.
Beginning this quarter, the company will no longer report MAUs and will use a different format namely monetizable daily active users (mDAUs) to mirror its audience differently.
Regarding the change in format, Twitter said mDAUs represents “users who log in and access Twitter on any given day through Twitter.com or our Twitter applications that are able to show ads.”
Twitter also pointed out that its mDAUs are on an equal footing with user data provided by other companies because its peers have an inclination to divulge “a more expansive metric that includes people who are not seeing ads.” Twitter further said it would start reporting average mDAUs for both the US and international markets.
For 4Q18, Twitter recorded mDAUs of 126 million, an increase from 115 million mDAUs in the comparable period of 2017. The company further stated that the average US mDAUs increased to 27 million for the quarter, from 25 million in Q4 2017. International mDAUs rose to 99 million for the quarter, versus 89 million in the prior-year period.
For the current quarter, Twitter expects revenues in the range of $715 million to $775 million. Refinitiv analysts anticipate revenues of $764.9 million for 1Q19.
Twitter also stated that it anticipates operating expenses (cash) to rise nearly 20% y-o-y to a range of between $550 million and $600 million in 2019 to consolidate its strategies across “health, conversation, revenue product and sales, and platform.”
Commenting on the results, Twitter CEO Jack Dorsey said: “2018 is proof that our long-term strategy is working. Our efforts to improve health have delivered important results, and new product features like a single switch to move between the latest and most relevant Tweets have been embraced by the people who use Twitter. We enter this year confident that we will continue to deliver strong performance by focusing on making Twitter a healthier and more conversational service.”
Expectations of a steep rise in FY19 operating expenses and a soft revenue outlook are expected to keep the stock in a downtrend.
Technically, the stock has broken below its 50-day moving average. Furthermore, the RSI indicator has a reading below 50. Therefore, we can expect the stock to remain bearish in the short-term.
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