Shares in Twitter rose sharply on Tuesday, after the company beat analysts’ expectations with higher-than-expected revenues and user numbers.
The social media company has struggled in its short life as a public company amid fears that its growth was slowing to a standstill. Before the latest results, Twitter’s stock had fallen 43.8% this year.
Reporting its second quarter results after stock markets close, Twitter said sales more than doubled to $312.2m, exceeding the $282.8m analyst estimate compiled by Bloomberg. Its number of monthly active users (MAUs) reached 271m at the end of June, 24% higher than last year but still marginally lower than the 25% year-on-year growth in the previous period.
Investors seemed cheered by a sharp rise in revenues and Twitter’s shares rose sharply in after-hours trading, rising over 30% shortly after the announcement. The spike came even as some analysts noted little had changed, highlighting losses for the quarter, which widened to $144.6m, or 24 cents a share, from a year-earlier loss of $42.2m, or 32 cents a share.
“We had a very strong first quarter. Revenue growth accelerated on a year over year basis fueled by increased engagement and user growth,” said Dick Costolo, Twitter’s chief executive officer. “We also continue to rapidly increase our reach and scale.”
Last quarter the growth rate of Twitter’s MAUs declined – worrying investors that the company was running out of steam. And the quarter-on-quarter growth rate remain low. Twitter’s latest monthly user figures were 6.3% higher than the last quarter when the growth rate was 5.8%.
In terms of user numbers Twitter remains a distant also-ran to Facebook, which added 40m new users last quarter to reach a total of 1.32bn.
Twitter has been attempting to downplay the importance of MAUs, arguing that its content is widely shared outside its platform, on TV and in other media. On a conference call with analysts Costolo said he saw a “big opportunity” for Twitter to make money from the way its service is used outside of Twitter’s platform.
Twitter’s audience is larger than its monthly active users numbers, Costolo said. “We believe [Twitter] ranks us among the top 10 largest digitally connected audiences in the world.”
The company is expected to unveil a set of new metrics that it hopes will paint a broader picture of its reach.
The company is particularly strong in mobile advertising. Some 81% of its total ad revenues came from mobile ads in the quarter, up from 80% in the previous quarter.
Alan Patrick, founder of tech consultant Broadsight, said ultimately Twitter needed to be valued on its revenues and its costs. “In the early days of a tech company you often don’t know what the end of day costs will be,” he said. “This fixation on one number – MAU in this case – in post IPO companies, without reference to the rest of the added value equation is at best lazy, and in my opinion its irresponsible – but it seems to be the way things are in tech stocks.”
James Gellert, CEO of Rapid Ratings International, said the stock price hike was “a sign of the times”. “People are excited to see any positive movement and to be fair to Twitter these numbers are green not red. But they do not mean that Twitter is a profitable company.”
He said the growth in users was still low and Twitter was now losing more money on a yearly basis than it did in 2013. “Ultimately this company needs to graduate from a company that’s measured by its growth to one that’s measured by its profitability and returns to shareholders,” he said.
