Twitter Inc (TWTR): Ignore User Metrics, Says Cantor

Twitter Inc (TWTR): Ignore User Metrics, Says Cantor

Twitter Inc (NYSE:TWTR) will release its second-quarter results on Tuesday, July 29 after the market closes. Shares of the microblogging company have declined more than 37% year-to-date as investors remain skeptical about its user growth metrics. Twitter continues to add new users but at a much slower pace than expected.

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Twitter Inc (TWTR): Ignore User Metrics, Says Cantor

Twitter’s June quarter revenues expected to double

Anyway, the San Francisco-based company is all set to report solid Q2 results and monetization growth would overshadow user metrics. That’s what Cantor Fitzgerald analysts Youssef Squali, Naved Khan and Kip Paulson believe. The research firm has a Buy rating on Twitter with $40 price target. Cantor Fitzgerald expects Twitter’s revenues to more than double in the June quarter, primarily driven by monetization gains. Notably, the company’s user growth slowed to 25% in the first quarter and engagement metrics declined 8%.

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Analysts expect Twitter to report $278.8 million in Q2 revenues, up 100.1% from the previous year. That’s in-line with the management’s guidance of $270-$280 million, but slightly lower than the Wall Street consensus of $283.1 million. Cantor Fitzgerald forecasts EBITDA of $36 million with 12.9% margin, ahead of the consensus estimate of $32.9 million.

Twitter has introduced a number of new features and advertising tools to attract more marketers. Analysts expect the company’s advertising revenue to surge 113.1% YoY to $257.8 million. Facebook Inc (NASDAQ:FB) posted strong advertising growth in the second-quarter. The Mark Zuckerberg-based company’s mobile advertising revenue soared a whopping 151% during the quarter. Cantor Fitzgerald expects Twitter to show a similar growth in mobile advertising. Twitter is a mobile-centric offering. About 80% of its ad revenue comes from mobile.

Twitter needs to fuel user growth

Though improved monetization will boost Twitter’s short-term growth, the company needs to keep attracting users to quell long-term growth concerns. Cantor Fitzgerald expects the number of monthly active users (MAUs) to increase 24% YoY to 270 million. That means the company would add 15 million new users during the quarter. Timeline views/MAU is expected to decline 7.6% to 640. However, advertising revenue per 1,000 timeline views is likely to increase 86% to $1.49.

Twitter shares were up 1.05% to $38.33 at 10:50 AM EDT on Tuesday.

Joy Baer, president at STRATA, a media buying and selling software company that processes over $50 billion in advertising annually, noted STRATA saw $0.43 worth of ad spend on Twitter for every $1.00 spent on Facebook for the first 6 months of 2014. The gap between the two companies has been closing for the past two years. For all of 2013, the ratio between Twitter and Facebook ad spend was $.033 to $1, and $.30 to $1 in 2012, according to STRATA.

Within STRATA’s systems, however, Facebook spend is still outpacing Twitter ad spend. Twitter spend is up 144% from the first 6 months of 2013 to the first 6 months of 2014. Facebook spend is up 174% during that same period.


Ad agency sentiment also indicates that Facebook remains a favorite for advertisers. STRATA’s most recent quarterly survey of ad agencies found that 86% of agencies said they will likely use Facebook in client campaigns, followed by YouTube (62%), Twitter (57%), and LinkedIn (38%).


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