Twitter Hawk Soars
Twitter, the little bird-turned-hawk, surprised markets yesterday with a strong improvement in 2nd quarter revenues which surged by 19.8% to $312.2 million. That was more than double the previous quarter’s results and well above analysts’ forecasts. Only a few months ago, the release of Twitters’ 1st quarter financials resulted in some serious concerns of fading popularity, but then the World Cup began. The nearly month long tournament, which has the highest viewership of all sporting events worldwide, went a long way to increase usage. In fact, user growth grew for the second consecutive quarter, increasing by 6.3% which is the equivalent of 16 million more Twitter users.
Fixing the Problems
That was welcome news to investors who had started to believe that Twitter’s once bright and shining star was fading fast. The company’s Chief Executive Officer, Dick Costolo, had been working feverishly to improve results and began first by replacing some of Twitter’s management who he felt weren’t in sync with his outlook for Twitter. Costolo also wanted to reassure investors that Twitter was a viable option for advertisers. To that end, the company made it easier for users to join Twitter, and then rolled out new and improved mobile advertisements. In fact, the 2nd quarter revenues are being attributed in very large part to that roll out, with mobile being seen as critical to future earnings, especially given that consumers are shifting away from desktop computers and laptops to mobile devices like tablets and Smartphones. Currently, mobile advertisements account for nearly 81% of all of Twitter’s ad sales.
Twitter’s a Hungry Bird
On the news of the turnaround in revenues, share prices in the little Twitter bird didn’t just flutter higher they soared higher like a Twitter hawk, rising 20% to $46.30 by the end of the trading day. Some forecasters had put Twitter’s share of the market’s advertising revenues, or put another way, Twitter’s piece of the advertising pie, at 2.8% for this year which would be slightly better than 2013 results, but bear in mind those forecasts were made before Twitter’s 2nd quarter results so if Twitter continues to capture market share those estimates could be revised upward. And capturing market share is exactly what Costolo wants to do; as he puts it, he wants the “largest audience in the world” and believes they have the means to achieve it. Anthony Noto, the recently appointed Twitter CFO who was also highly involved in the Twitter IPO when he worked as a Goldman Sachs exec, agrees and says that he joined Twitter on the strength of that one simple belief. Currently, Twitter’s audience size is about 271 million active users per month, with perhaps twice or three times as many users who don’t actively log in but who are regularly exposed to user tweets.
Down to Practice
So what’s in the cards for the Twitter bird? Currently investors expect the blue Twitter bird to fly all the way to its $60 a share price. Will it happen? Time will tell; certainly there are risks but with all the hype, one should at least consider it.
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