Twitter Stock Gains Post Earnings Beat!

Shares of social-media platform Twitter (NYSE: TWTR) have gained close to 4% in early market trading on July 23. Twitter released its second-quarter results on Thursday after the market close and reported revenue of $1.19 billion with adjusted earnings per share of $0.20. In the prior-year quarter, Twitter reported sales of $683 million and an adjusted loss per share of $1.39. Wall Street had forecast Twitter to report sales of $1.06 billion and earnings of $0.07 per share in the second quarter of 2021.

 

Key performance metrics for Twitter in Q2

Twitter generates a substantial portion of revenue from ad sales which grew 87% year over year in Q2. Comparatively, its data licensing and other revenue surged 13% in the June quarter of 2021.

Twitter’s average monetizable daily active users stood at 206 million in Q2, compared to 186 million in the year-ago period and 199 million at the end of Q1. This growth has been attributed to ongoing product improvements as well as the global conversation surrounding world events.

Twitter CFO Ned Segal claimed, “We delivered better-than-expected performance across all major products and geographies while growing our audience. We continued to make significant progress on our direct response and brand products with updated ad formats, improved measurement, and better prediction. We are driving more value for advertisers with our strong push into performance-based advertising and expanded offerings for small and medium-sized businesses.”

In the third quarter of 2021, Twitter expects sales between $1.22 billion and $1.3 billion, which suggests a year-over-year growth of 62% at the midpoint guidance. Wall Street on the other hand has forecast sales to grow by 51% to $1.17 billion in the June quarter.

 

What next for TWTR stock?

Twitter needs to generate meaningful earnings consistently to regain investor confidence. In 2020, the company reported an adjusted loss of $0.87 per share. Its forecast to improve earnings to $0.79 per share in 2021 and to $1.08 per share in 2022.

Despite its swinging bottom-line, Twitter’s stock has gained 280% in the last five years, easily surpassing S&P 500 gains of 120%. Twitter is currently valued at a market cap of $57.66 billion which means it's trading at a forward price to sales multiple of 9x and a price to earnings multiple of 67 which is extremely steep.

However, Twitter expects to increase sales to $7.5 billion in 2023, more than twice the company’s sales of $3.72 billion in 2020. The company’s top-line growth is all set to accelerate in 2021 after it grew by 24.5% in 2018, 13.7% in 2019, and just 7.4% in 2020.

 

Twitter blue subscription service

One key revenue driver for Twitter will be the launch of recent subscription services such as Twitter Blue. This service will initially be launched in Australia for $2.36 and in Canada for $2.89 per month. Here, users will get additional services such as bookmarking folders where tweets can be saved or even organized as part of a virtual library.

It also features an undo button that can be set up until 30 seconds after a tweet is sent for publication on a user’s timeline. Further, it introduced a reader mode feature where the user can assemble long threads into a single text. In addition, Twitter Blue subscribers will get access to customizable icons and themes.

Twitter has confirmed it will continue to spend heavily on product development to increase user engagement which will eventually drive monetization higher and lead to strong growth in top line.

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Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.