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Twitter (TWTR) Q3 Earnings Lag Estimates, Ad Revenues Rebound

Twitter TWTR reported third-quarter 2020 adjusted earnings of 4 cents per share that missed the Zacks Consensus Estimate by 33.3% and declined 20% year over year.

Revenues increased 14% year over year to $936 million attributed to a global, broad-based recovery in advertising revenue and beat the Zacks Consensus Estimate by 19.1%.

User Details

Average monetizable daily active users (mDAU) grew 29% year over year to 187 million, driven by global conversation around current events including the run-up to U.S, elections and product improvements.

Average mDAU grew 1 million sequentially, reflecting increased retention across new and recently reactivated accounts due to the ongoing impact of product improvements, including continued increases in relevance across notifications, search, Explore, and the Home timeline.

Average U.S. mDAU was 36 million compared with 30 million in the year-ago quarter and remained flat sequentially. Average international mDAU was 152 million compared with 115 million in the year-ago quarter and 150 million in the previous quarter.

Twitter, Inc. Price, Consensus and EPS Surprise

Twitter, Inc. Price, Consensus and EPS Surprise

Twitter, Inc. price-consensus-eps-surprise-chart | Twitter, Inc. Quote

In the third quarter, the company launched a United States election hub to offer accurate information and resources about the 2020 presidential election. Moreover, Twitter expanded the types of political accounts that are labelled, with new labels for government and state-affiliated media accounts, and made it easier to find trusted information about voting in the United States by partnering with @VoteGov, @USAGov, and @EACgov to launch a search prompt that guides people to accurate voter registration information.

Topics, launched in fourth-quarter 2019, also drove growth. Twitter stated that as of Sep 30, 2020, there were more than 5,100 Topics, up over 25% quarter over quarter, with increased personalization of each Topic and an expanded variety of Topics, including more news and location-based Topics. The number of accounts following Topics reached 70 million, up 40% quarter over quarter.

Notably, during the quarter, Twitter began experimenting with a prompt that encourages people to read an article if they attempt to Retweet it without reading beyond the headline. People who Retweet articles now open them 33% more often before sharing.

With sports and live entertainment events returning in the third quarter, the company announced an updated and extended partnership with NBC Olympics in the United States to amplify NBC Olympics’ vast coverage of the 2021 Tokyo Games and 2022 Beijing Games with a daily live studio program.

Per a recent study conducted by Twitter, 86% of NBA fans on Twitter agree that the platform helps make up part of what's missing from attending games in person or watching with friends, leading to a 73% increase in Tweet volume during reopening day compared with the 2019 Christmas Day games.

Moreover, the company executed a partnership with the WNBA to live-stream 10 regular-season games, marking the fourth consecutive season of availability of the league’s games on Twitter.

Twitter has been focusing on reducing abuse on its platform. The company has improved its ability to proactively identify and remove abusive content from the platform.

Revenue Details

U.S. revenues (54.8% of revenues) increased 10% year over year to $513 million. International revenues (45.2% of revenues) increased 18% to $424 million.

Japan remained the company’s second-largest market, contributing $132 million or 14.1% of total revenues in the reported quarter.

Advertising revenues increased 15% to $808 million. Advertisers around the world significantly increased their investment on Twitter, seeking to engage a larger audience around the return of events as well as increased and previously delayed product launches.

In the last three weeks of the third quarter, ad revenue was up 19% year over year with fairly consistent daily growth rates during that period.

U.S. advertising revenues totaled $428 million, up 11% year over year. International ad revenues increased 20% to $381 million.

The company’s advertising revenues witnessed a broad-based global rebound, driven by an upswing in advertiser sentiment for digital ads in general and for Twitter’s solutions, the resumption of more events and product launches, and continued strength in markets that saw earlier recoveries from the pandemic.

Total ad engagements increased 27%, driven by strong growth in ad impressions due to growing audience and increased demand for ads.

Twitter introduced a number of ad formats and targeted improvements to better serve brands during the third quarter including a Branded Likes beta (which allows advertisers to customize the like button with animated brand imagery) and the rebuild of First View ad format, driving an average of 30-40% more impressions per advertiser and the redesign of Amplify pre-roll video ads, designed to drive better brand lift with more ways to match content with ads.

Moreover, the company also began testing a new video optimization tool designed to deliver a lower cost per completed video view and launched a third-party brand survey measurement tool for Promoted Spotlight and First View formats.

However, cost per engagement (CPE) decreased 9%, driven by price decreases across most ad formats.

Data licensing and other revenues increased 5% from the year-ago quarter to $128 million driven by continued growth in Developer and Enterprise Solutions (DES).

Twitter’s total costs and expenses were $880 million, up 13% on a year-over-year basis as the company incurred more revenue-related expenses due to the outperformance of advertising revenues.

Research and development expenses grew 17% to $209 million, primarily due to higher personnel-related costs. Sales and marketing expenses declined 5% to $215 million, primarily due to lower travel and marketing expenses. General and administrative expenses grew 1% to $95 million, primarily due to higher personnel-related costs.

Adjusted EBITDA increased 11.9% year over year to $294 million.

The company reported GAAP operating income of $56 million compared with $44 million in the year-ago quarter.

Balance Sheet

As of Sep 30, 2020, Twitter had $7.68 billion in cash, cash equivalents and marketable securities compared with $7.8 billion as of Jun 30, 2020.

In the third quarter, adjusted free cash flow was ($74 million) compared with $167 million in the year-ago quarter.

Net cash provided by operating activities in the quarter was $215 million, a decrease from $336 million in the same period last year.

Zacks Rank & Other Stocks to Consider

Currently, Twitter has a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector include Q2 Holdings, Inc. QTWO, Square, Inc. SQ and Covetrus, Inc. CVET, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Q2 Holdings, Square and Covetrus are set to report quarterly results on Nov 4, Nov 5 and Nov 10, respectively.

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