Twitter Inc (NYSE:TWTR) stock tumbled more than 11% after the company’s fiscal Q3 results. The microblogging company exceeded expectations on both revenue and EBITDA. However, user engagement was a bit of a concern. Cantor Fitzgerald analyst Youssef Squali said in a research note that Twitter’s quarterly result was “decent.”
Investors concerned over Twitter’s user metrics
The San Francisco-based company’s revenue jumped 114.3% to $361.3 million, beating the Wall Street estimate of $351.5 million. Advertising revenue grew at 108.7% to $320.3 million. Notably, mobile accounted for 85% of the company’s ad revenue, which is the best in social networking industry. EBITDA of $68.3 million was also above the consensus estimate of $53.2 million.
The number of monthly active users (MAUs) rose 22.4% from last year to 284 million, missing the consensus estimate of 284.5 million. Cantor Fitzgerald said growth in active users is the most important metric given the company’s aspirations and the size of its biggest rival Facebook Inc (NASDAQ:FB). Facebook ended its Q3 with 1.35 billion monthly active users. Twitter’s total timeline views increased 14% to 181 billion, but fell short of the consensus estimate of 183.6 billion.
Twitter has significant monetization potential
The microblogging company’s ad revenue per thousand timeline views surged 83.1% to $1.77. This level of growth reflects advertisers’ appetite for placing ads on Twitter. However, Twitter’s monetization level is just about 50% of Facebook. Cantor Fitzgerald says Twitter is under-monetized, but with significant upside potential.
New ad formats and tools such as promoted video ads and mobile app installs continue to improve advertisers’ ROI. What’s more, Twitter has the potential to effectively target non-logged in users, whose number is much greater than Twitter’s active user base. Further, improvements to the user experience and content should help the company re-accelerate user engagement. Cantor Fitzgerald has a Buy rating on the stock with $58 price target.
Facebook’s strong results a welcome development
On the other hand, Twitter’s biggest rival Facebook continues to grow rapidly despite its gigantic size. The Menlo Park-based company’s Q3 revenue soared 59% to $3.2 billion. Non-GAAP earning of 43 cents a share was above the consensus estimate of 40 cents. Facebook CEO Mark Zuckerberg said at the earnings call that the company would continue to spend aggressively in new technologies. UBS analyst Eric Sheridan said Facebook’s strong results and user metrics were a “welcome development” in the relatively volatile Q3 earnings session.