Twitter reported solid first quarter earnings before the opening bell yesterday, April 23rd, below are comments from analysts on the comapny’s earnings and 2Q GAAP EBIT guidance.
We’ve seen continued improvement in the usability of the platform, but think that Twitter still has work to do to continue to engage its loyal user base. While DAUs saw the strongest net adds in ’17 and DAU/MAU is also at its highest levels we feel that the platform needs continued investment in usability and content to attract a broader audience and increase engagement.
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Raising target to $44 from $33 and maintaining our Outperform rating as platform improvements are driving mDAUs and monetization remains strong. Global mDAU growth was 3% above the Street and 100bps faster than 4Q, with US/International mDAU +8%/+12% y/y. US ad revenue strength, +26% y/y, was the main catalyst for total revenue 2% above Street expectations, along with product innovations. During 1Q, a public prototype was released to select users with the focus of making the platform more conversational. Twitter machine learning initiatives have been proactive, flagging 38% of abusive Tweets before being seen. In general, the company has navigated public policy issues better than peers Google and Facebook. Target implies 7x '20E sales vs. peers (FB, GOOG) trading at 6x.
Twitter topped consensus revenue / adj. EBITDA in 1Q in addition to delivering upside to mDAU / MAU forecasts. The revenue beat was largely driven by strength in the U.S. advertising business, which accelerated to +28% y/y growth. Operating income came in better than expected due to revenue upside and some non-headcount expenses slipping into future quarters. Twitter still expects expenses to grow approximately +20% y/y in FY 2019, implying its pace of investment will accelerate from 1Q levels. Overall we think Twitter took another step in the right direction in 1Q, but probably not the leap Tuesday’s stock move implies. We maintain our Hold rating on Twitter shares and raise our Target Price to $35.
Twitter's ~$790mn 1Q revenue was relatively in-line with us while ~$95mn of GAAP EBIT was ~$40mn (~70%) better than us and ~170% ahead of the top end of guide. This EBIT upside and the comment that it was driven by “better-than-expected revenue and lower than-expected costs, reflecting one-time items, the delayed timing of certain expenditures, and scenario planning that incorporated too many conservative outcomes” is likely to fuel the near-term investor debate around how conservative Twitter's full-year 20% GAAP opex growth guide and the top end of Twitter's $70mn 2Q GAAP EBIT guidance are. For perspective, we were previously at ~$85mn of 2Q GAAP EBIT. This debate, in our view, is likely to keep the stock range bound in the “30s” tactically.
Results for 1Q19 were solid with better revenue driven by a reacceleration of U.S. ad revenue (+26% YoY vs. +24% in 4Q18) and lighter Opex than originally called for, which likely comes back over the balance of the year as the expense growth outlook of +20% YoY was left unchanged. Guidance for 2Q was a bit light, though considering the company exceeded the high end of its guidance range over the last two quarters, the revenue outlook is likely conservative. In our view, the focus from here remains concentrated on the operating margin trajectory for the year (and beyond), as well as tougher back-half comps in the U.S. as the business laps the 2H18 recovery; management called this out with comparisons made to the 1H18 international recovery that led to 1Q19 international FX neutral growth of +15% YoY (vs. +53% in 1Q18). Though the international recovery was more pronounced than what we saw domestically, we’re ascribing mid-teens growth as our base-case assumption for 2H19 U.S. advertising revenue. DR continues to be a focus on the ad-unit side, though the lines continue to blur with formats such as Video Website/App Cards, which exhibit both brand and performance objectives. Our numbers change only marginally, and we view shares as fairly valued at current levels. We’re maintaining our Neutral rating and raising our target price to $33 from $31.
Braid Equity Research
Twitter reported solid Q1 results, beating consensus expectations on the top- and bottom-lines, with healthy advertising revenues and accelerating mDAU growth. Specifically, mDAUs grew 11% Y/Y (vs. +9% Y/Y in 4Q18), reflecting improvements to engagement trends, likely relating to recent product improvements. Overall Q1 revenues of $787M (+20% ex-FX), were modestly above consensus of $774M; US revenues totaled $432M, with growth accelerating from Q4 (+25% Y/Y vs +24% Y/Y in Q4), while International revenue growth moderated on tougher comps (+11% vs. +24% Y/Y in Q4, +15% ex-FX).