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Twitter Addressing Challenges Through Partnerships

Posted on Friday, Feb 13th 2015

Twitter’s (NYSE: TWTR) stellar growth story may have faded a bit, but it is still a powerful platform. User growth metrics may not be spectacular, but they exceeded the market’s financial expectations. It appears that things are getting back on track, albeit rather slowly.

Twitter’s Financials

Twitter’s fourth quarter revenues grew 97% over the year to $479 million, ahead of the Street’s forecast of $454 million. EPS of $0.12 was also ahead of the $0.06 forecast by the market.

By segment, advertising revenues improved 97% to $432 million with mobile advertising accounting for 88% of the revenues. Data licensing and other revenue increased 105% to $47 million. Twitter’s international markets saw revenues grow 149% over the year to $164 million.

Among operating metrics, user growth continued to slow down. The monthly average user base increased 20% over the year to 288 million. A quarter ago, that number had reported a growth of 23% to 284 million. The slow growth of the users was partly attributed to a bug that caused a loss of monthly active users while upgrading to iOS8.

Mobile penetration remained flat at previous quarter’s 80%. Timeline views improved from 14% a quarter ago to 23% at 182 billion. Ad revenue for every 1,000 timeline views increased 60% to $2.37 compared to the 83% growth reported in the previous quarter. It is certain that Twitter is no Facebook, but analysts are concerned about the level of Twitter’s user engagement. Analysts believe that nearly 25 million Twitter users don’t do anything on their Twitter accounts, except passively reading Tweets.

Twitter ended the year with revenues growing 111% to $1.4 billion and a net loss of $578 million. They reported an adjusted EBITDA of $301 million for the year.

For the current quarter, Twitter projected revenues of $440 million-$450 million, against the Street’s forecast of $449 million. They expect to end the year with revenues of $2.30 billion-$2.35 billion, compared with market projections of $2.3 billion.

Twitter’s Growth Plans

Twitter is continuing to expand both their content and market reach. As part of their content expansion, they announced the acquisition of Niche last week. New York-based Niche is a startup that connects video stars with advertisers. The Internet has helped create a celebrity status for several amateurs who use their talent for videos, some of which go viral. Niche helps advertisers meet with these upcoming stars to act as the right “influencer” for their target audience. Twitter already has a video service, Vine, which lets users share six-second videos.

Twitter has also entered into several partnerships recently to expand their reach to non-Twitter users. They tied up with Google in an agreement that will enable Google to show real-time Tweets on their search results. A few years ago, Twitter and Google shared this relationship, but they had separated as Twitter management wanted to retain more control over their content. Right now, it appears that Twitter is more focused on expanding their market presence instead. Terms of the deal were not disclosed, but Twitter is expected to get data licensing revenues in return.

Earlier this month, Twitter also entered into a partnership with Flipboard to syndicate their Promoted Tweets. As part of the agreement, advertisers promoting on Twitter will be able to reach a similar audience on Flipboard’s mobile application while ensuring that the Promoted Tweet provides Flipboard’s native experience to the end user. They entered into a similar agreement with Yahoo Japan.

The market was also pleased with Twitter’s developer-focused product Fabric. Fabric lets developers build apps that are able to run on multiple smartphone operating systems while being integrated into Twitter. The product helps developers increase usability of the data by understanding user behavior and ultimately helping with monetization of the app.

But Twitter has also had their share of woes in the recent past. Earlier this month, their CFO’s Twitter account was hacked and started sending out spam Tweets. Soon after, the incident was followed with a large number of Twitter users getting locked out of their accounts. The issues were fixed soon enough.

Twitter’s stock is trading at $47.95 with a market capitalization of $30.18 billion. It touched a 52-week high of $58.98 in February 2014. It has recovered significantly from the 52-week low of $29.51 it had touched in May 2014.

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