Wall Street has been obsessed with Twitter (NYSE:TWTR)'s slowing user growth, although analysts are starting to say that it isn't a big deal. In fact, right now most analysts agree that talk about the World Cup is probably increasing domestic user growth, which should give Twitter a boost. In addition, Evercore analysts are increasing their second quarter estimates in the wake of the company's two new product announcements.
World Cup to help Twitter's user growth
In a report dated June 26, 2014, analysts Ken Sena, Conor McDade and Andrew McNellis said it's likely that Twitter (NYSE:TWTR)'s domestic user growth will speed up slightly to 20%, compared to 19% in the first quarter. They note that the company's growth comparisons are starting to ease and say that this month's World Cup will also likely contribute to user growth on the micro-blogging platform.
In the current quarter, they expect Twitter to add about 2 million domestic users sequentially, which is down from 3 million last quarter. However, they're ahead of consensus estimates, which are at 1 million incremental new users, which is 18% growth.
The Evercore team notes that Twitter hasn't added fewer than 1 million domestic users in a quarter since at least the beginning of 2012. As a result, they think that Wall Street's estimate of 21% global user growth has set the bar pretty low. They say the fact that traffic trends have been generally positive supports their view.
Possible upside to Twitter
The Evercore analysts said in addition to possible upside to user growth, Twitter's new product initiatives could immediately impact the company's monetization. This month Twitter announced app install ads and also expanded capabilities for MoPub on the Twitter platform.
In terms of the app install ads, the analysts said "even modest success" would significantly grow the company's ad revenue. By "modest," they mean approximately app install ads would make up 5% of ad revenue. This compares to their estimate for Facebook (NASDAQ:FB), which they say sees 20% of its mobile ad revenue from app install ads. So if Twitter sees 5% growth from app install ads, its revenue would grow by 1,000 above both their new estimate and consensus to 118%.
Twitter estimates increased
The Evercore analysts increased their second quarter revenue estimate 3% to $279.5 million, which is 101% year over year growth. That's at the high end of Twitter's guidance of between $270 million and $280 million, although it's about in line with Wall Street estimates. The main driver of that increase is a $5 million addition to their ad revenue estimate, which is now at $251 million or 108% higher year over year. They also raised their new Data Licensing and other Revenue estimate by $4 million because MoPub revenue will fall under this segment.
They maintained their Overweight rating and $48 per share price target on Twitter. Shares of Twitter slumped by more than 1% today after jumping yesterday due to a bullish report from Barclays.