Well, I hate to be the one to say I told you so about Twitter (TWTR) … but, I told you so.
Back on Jan. 2, shortly after TWTR stock bounced out of its post-IPO lull, I warned that the hype surrounding Twitter had blinded the market to some stark realities. The biggest of those realities was the ridiculous valuation that not even phenomenal growth could justify anytime soon. A close-second worry to the valuation concern regarding Twitter (and perhaps more relevant to investors at the time), however, was the specific concern that there was absolutely no room whatsoever for any kind of shortcoming.
Four months later, in the shadow of a 38% pullback from TWTR, we unfortunately have our proof that (1) Twitter stock was indeed overvalued given the numbers on the table, and (2) there wasn’t a smidgen of room for disappointment.
As evidence to those ends, Twitter actually fared better than expected last quarter, in terms of the top and bottom line. And to be clear, it actually grew earnings and revenues in the previous quarter, also growing its user base. The prompt for the 12% post-earnings plunge from TWTR stock, however, was that user growth appears to be slowing.
It’s a problem because accelerating user growth was the one thing traders were using to justify an enormously lofty valuation.
The Rest of the Twitter Numbers
The good news: Revenue was up 119% on a year-over-year basis last quarter, reaching $250 million, and the loss of 23 cents per share (though the company broke even on a non-GAAP basis) was a little healthier than the anticipated loss.
The outlook for Q2 as well as all of 2014 was in line with forecasts as well; Twitter is looking for roughly $275 million in revenue for the current quarter, and between $1.2 billion and $1.25 billion in revenue for fiscal 2014. And, the number of active users — those who log into Twitter at least once per month — grew to the tune of 25% in the first calendar quarter of the year on a year-over-year basis, and was up 6% from the total number of active users Twitter was boasting at the end of 2013.
The bad news: The market expected … no, desperately needed user growth to roll in stronger than 25% (YOY) and 6% (QOQ). It was the red-hot user growth of yesteryear — and only the red-hot growth that apparently peaked at 30% two quarters ago — that was propping a wildly overvalued TWTR stock up.
Twitter followed up on those results, explaining how certain nuances of user engagement were actually encouraging. Specifically, the number of timeline views in Q1 was higher than it was in Q4, and was up 15% on a year-over-year basis.