Twitter delivered a mixed earnings report for the fourth quarter of 2014.
On the one hand, the business is doing great.
Revenue was $US479 million, up 97% on a year-over-year basis, blowing away analyst expectations of $US453.6 million.
Adjusted earnings per share were $US0.12, which was double analyst expectations of $US0.12.
On the other hand, Twitter’s usage remains challenged. Twitter had 288 million average monthly active users, which was short of 292 million, which was expected by analysts.
Investors decided that for this quarter, they cared more about revenue than users. The stock was up 10.4% after Twitter’s earnings call ended.
Perhaps, part of the reason the stock was up is that Twitter said monthly active users are looking good for the first quarter of 2015. Twitter executives said they expect a sequential increase in users that is comparable to the first three quarters of 2014. That would lead to ~14.3 million users for Q1, which would lead to 302.3 million monthly active users in the first quarter of the year.
Part of the reason Twitter feels optimistic that it will regain users is that it has rolled out new products to increase usage. CEO Dick Costolo talked about Twitter’s new “instant timeline” that makes the product better for people that are new to Twitter. He also talked about adding video, which will increase content creation and consumption.
One curious stand out from the report: Twitter said it lost 4 million users to an iOS 8 bug. What happened was that Twitter had some sort of “auto polling” through Safari that was wiped out in iOS 8, thus removing 3 million users. The other 1 million users were lost due to an encryption issue that didn’t allow them to log into Twitter. (More details here.)
On the call, analysts wanted to know about Twitter’s deal with Google. Google will be getting access to Twitter’s data hose and it will start surfacing tweets in search. For Twitter, this is a new way to get users from search and try to convert them to active users. It also gives Twitter an opportunity to serve ads to logged out users.
Overall, this report gives no definitive answer on the state of Twitter.
The business continues to be healthy. And perhaps the business will always be healthy regardless of user numbers. Or, perhaps at some point revenue growth grinds to a halt and ends up matching user growth. We still don’t know.
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The call starts at 5 PM.
It’s 5! So the call is starting.
Dick Costolo is starting the call… pace of execution is already improved. Seen in recent cadence of releases.
Financially, another great quarter. Going over the revenue numbers now.
In 2014. $US1.4 billion in revenue up 111%. Accelerated versus 2013. So, I want to publicly congratulate everyone on the business engine.
288 million MAU, added 4 million this quarter. There are Q specific factors, seasonality, and some iOS 8 launch issues.
MAU trend has already turned around, and Q1 should be net adds like what we saw in first 3 Qs of 2014.
Talking about strengthening the core.
Native mobile video: See what we see with photos. An abundance of creation and consumption. Started with Vine, which is doing well … 1.5 billion Vine loops per day. Now anyone can capture, edit video within the app.
Now talking about direct messaging. Group DMs. Now people can have private conversations with a group of people. Some of the work between public and private conversations.
Now talking about instant timeline that “immediately drops users into” a great timeline.
Now talking about removing barriers to consumption.
Meanwhile, Twitter up over 11% now.
Launched initial experiment of a logged out home page. Expect to iterate. Will be based on algos. Just launched while you were away which shows you tweets while you were away.
Talking about Cricket world cup. Work with ZipDial to bring commentary from Cricket to users.
Fabric can become the infrastructure layer. As more and more apps integrate, Twitter grows. Twitter can be the monetization layer for mobile apps.
Because primary ad unit is a tweet, ads can go where tweets go. Started syndicating ads with Flipboard. Just signed a deal with Yahoo Japan to syndicate tweets.
Now our audience is beyond our owned and operated apps/sites.
Product updates make Twitter better for existing ads and make things better for new users.
Proud of the way company has embraced and been fuelled by these changes.
CFO ANTHONY NOTO NOW TALKING:
Going through numbers. Direct sales continues to be strong. 50%. Going over where growth is coming from. Stronger international growth than US growth.
Talking about costs now.
Cash is unchanged Qto Q…
Talking operating metrics.
MAUS 288 million, y/y growth of 20%. Lost 4 million to iOS 8 impacted polling MAUs, affected twitter owned and operated MAUs. Q4 is seasonally weakest. Net adds should return.
Cost per ad engagement was up 10%.
Encourage by increase in CPE.
Guidance. Reported results beat last guidance, better than expected spending from brands at Q4. Just going over the guidance numbers we’ve already heard.
Guidance based on currency rates of Jan 1. Currency impacted Q1 and full year 2015. $US6.5 million lower due to currency changes. As you model estimates. Q1 in 2014 benefitted from Olympics. Without Olympics, Q1 2014 -1% sequentially. (Also warned that World Cup bumped revenue and people should be aware of that.)
Mahaney: Slew of 3rd party deals…. how will impact be in P&L? Engagement what should we look at in future?
Dick: Yahoo and Flipboard are exciting. Google type deal… do want to confirm we have a relationship we’ve agreed to, no details at this time. They will drive traffic to logged out.
Noto: Engagement, no timeline view. It’s a measurement that doesn’t reflect initiatives. In fact, we’re hurting timeline views, like while you were away will cut time line views.
We have great variance in DAU to MAU. In emerging markets, DAU to MAU low, in established, it’s high.
Barclays: Run rate in first three quarters in Q1, acceleration — seasonality or something else? Pitch to advertisers?
Dick: In Q1, seasonality, return to organic growth, and product initiatives. At a high level, changes we’re making now, changes across logged in, logged out. User numbers in January that MAU trend is turned around. Absolute net adds we saw in 2014.
Noto: For everyone’s benefit, we added 14 million sequential, Q2, 16, Q3, 13, Q1 … we’re referring to those numbers.
Dick: Second question, same ad unit, bringing to the logged out experience. Important to highlight, we are focused on a delightful user experience.
… I am excited about instant timeline. We know follow is high friction. Dropping into high quality time line will drive engagement.
Question: Why not logged off user get best of and a brand ad?
Dick: That’s exactly what we’ll be doing.
Goldman Sachs: Engineering priorities?
Dick: Lots of product experiences will emerge from things like instant timeline.
Question about currency impact.
Noto: yes, currency will have an impact.
Question: what is driving long term profits?
Noto: At analyst day, new perspective on long term margin. Leverage is outperformance Big investments in cap ex. third data center.
Question on churn:
Noto: It has improved in Nov and Dec. We have initiatives to convert unhealthy users to healthy users. Encouraged by the trend.
Question about Vine v new video option.
Dick: Let me pan back… Imagine capturing video at Ferguson and capturing immediately, we see that. Vine is distinct from, but complimentary to Twitter. Has Vine stars doing something different.
MS analyst: Will syndicated tweets add revenue? Why did Twitter end Google and is now back?
Noto: these deals were in our guidance. In terms of how revenue recognised. Comes down to what channel it goes through.
Dick: Google… way we think about it now is distinct from kind of relationship we had in the past. Drive attention to and aggregate eyeballs to logged out experiences and topics and events.
Question about onboarding … convert logged out to logged in users?
Dick: None of the work we’ve done has had any impact at all yet. Over time we think about our ability to think about Twitter content.
Question about Google deal. Revenue growth?
Noto: Leverage audience they have. Wont necessarily mean monthly active user. Today not what we’re focused on.
Dick: this is not something you will see for several months.
Question about losing iOS 8 users…
Noto: 3 million safari auto pulling MAUs, don’t expect to get them back.
Dick: add more… we have a great relationship with Apple. On second part, unforeseen bug in iOS 8 as it relates to Twitter. Once we understood issue, moved as quickly as we good. Wasn’t a once size fits all fix. Problem was complex and affected old users differently.
[This was not very clear…]
And, we’re done.