It has been about a month since the last earnings report for Twitter (TWTR). Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Twitter due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Twitter’s Q2 Earnings Miss, Advertising Revenues Weak
Twitter reported second-quarter 2020 adjusted loss of 16 cents per share that was much wider than the Zacks Consensus Estimate of a loss of 2 cents. The company had reported adjusted earnings of 5 cents per share in the year-ago quarter.
During the quarter, the company recognized a deferred tax asset valuation allowance of $1.1 billion and a non-cash income tax expense based primarily on cumulative taxable losses attributed to the coronavirus (COVID-19) outbreak. As a result of the valuation allowance, Twitter incurred a net loss of $1.2 billion in second-quarter 2020.
Revenues declined 19% year over year to $683 million, which missed the Zacks Consensus Estimate by 3.8%.
User Details
Average monetizable daily active users (mDAU) were 186 million in the reported quarter compared with 139 million in the year-ago quarter and 166 million in the previous quarter.
Average U.S. mDAU was 36 million compared with 29 million in the year-ago quarter and 33 million in the previous quarter. Moreover, average international mDAU was 150 million compared with 110 million in the year-ago quarter and 133 million in the previous quarter.
User growth was primarily driven by frequent discussions on the burning issue of coronavirus and an improved product experience. The company’s success in providing relevant content to people’s Home timelines and notifications contributed to mDAU growth.
Notably, the company expanded its Fleets experiment (rolled out in the first quarter in Brazil) to three more markets — Italy, India, and South Korea — to provide a new way to start conversations by sharing momentary thoughts through text, images and videos.. Fleets disappear after 24 hours and do not get Retweets, Likes, or public replies. Twitter also launched the ability to easily see all Retweets with comments for any Tweet.
Topics, launched in fourth-quarter 2019, also drove growth. Twitter stated that as of Jun 30, 2020, there were more than 4,100 Topics with more news and location-based topics and improved quality. The number of accounts following Topics reached 50 million by the end of the quarter.
Lists, which makes it easier for people to create and share timelines about the things that matter to them, improved engagement. In the second quarter, the company launched a set of features to help people discover Lists related to their interests.
Twitter has been focusing on reducing abuse on its platform. The company has improved its ability to proactively identify and remove abusive content from the platform.
Moreover, the company collaborated with Global Citizen to live-stream the #TogetherAtHome concert that supported the World Health Organization, which featured performances from top musical artists, stories from frontline workers, and insights from health experts that generated over 10 million views and over 2.2 million Tweets.
Revenue Details
U.S. revenues (53% of revenues) decreased 20% year over year to $364 million. International revenues (47% of revenues) decreased 18% to $318.5 million.
Japan remained the company’s second-largest market, contributing $108 million or 15.8% of total revenues in the reported quarter.
Advertising revenues declined 23% to $561.9 million. During the last three weeks of June, advertising revenues declined 15% year over year.
U.S. advertising revenues totaled $283 million, down 25% year over year, reflecting brand spending pauses related to the pandemic and civil unrest. International ad revenues declined 20% to $279 million due to coronavirus-led business lockdown in APAC.
Nonetheless, the company witnessed slight recovery in APAC during the quarter, driven by MAP campaigns, product launches, and slight return of economic activity contributing to revenues.
Ad engagements increased 3% year over year, resulting primarily from audience growth offset by a mix shift to ad formats with lower click-through rates.
Video ad formats declined year over year but continued to constitute the majority of ad revenues generated in the reported quarter. Twitter witnessed a mix shift in advertising demand from brand oriented ad formats to direct response products such as website clicks and MAP.
However, cost per engagement (CPE) decreased 25% year over year due to decline in price for like-for-like price feature across most ad formats and lower demand.
Data licensing and other revenues increased 6% from the year-ago quarter to $121.4 million.
Twitter’s total costs and expenses were $807 million, up 5% on a year-over-year basis.
Adjusted EBITDA declined 53.5% year over year to $132.7 million.
The company reported GAAP operating loss of $124 million against GAAP operating income of $76 million in the year-ago quarter.
Balance Sheet
As of Jun 30, 2020, Twitter had $7.8 billion in cash, cash equivalents and marketable securities compared with $7.7 billion as of Mar 31, 2020.
In the second quarter, adjusted free cash flow was $39 million compared with $204 million in the year-ago quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, Twitter has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Twitter has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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