As I expected, the slimming-down of Twitter Inc (NYSE:TWTR) and its focus on operations have had the desired effect. The company announced before the market opened on Apr 26 that it made money in the first quarter, a whopping $82 million non-GAAP, on revenues of $548 million. This was enough to send TWTR stock up over 10% in pre-market trading.
I had expected something like this from Twitter earnings the last time I wrote about the company. the company’s management has been cutting divisions and focusing on ad sales to show a profit which, I think, will be followed by a sale of the company.
The Twitter earnings release highlighted a 14% gain in traffic, year-over-year, with 800 hours of live premium video generating 45 million views, but those who are jumping on TWTR stock this morning might want to take a second look at the earnings to see the real story behind the numbers.
Twitter Earnings: It’s Still Losing Money
While non-GAAP earnings were positive, the net loss under Generally Accepted Accounting Principles (GAAP) was $62 million, or 9 cents per share. TWTR expects to give away $115 to $125 million in stock-based compensation during the second quarter, ending in June, so don’t expect a GAAP profit then, either.
The non-GAAP earnings were also 20% lower than a year ago, as Twitter admitted that advertising rates have declined, and it will continue to be negatively impacted by the loss of revenue from products it has cancelled, like Vine.
Rather than talk about any of that, CEO Jack Dorsey and CFO Anthony Noto talked about user growth and return on investment in their discussion with analysts: “Daily Average Users (DAU) is the most important metric,” said Dorsey. “Twitter is what’s happening and what’s being talked about.”
Noto noted that four straight quarters of DAU growth is “very positive,” and the “audience is growing” even while ad rates are declining.
Next Big Thing for TWTR Stock?
The biggest takeaway from the conference call may be that Twitter is becoming a TV company.
TWTR plans to participate in the TV “upfronts” next week, focused on things like the “Red Carpet” show it did before the recent Grammy Awards, which Dorsey said drew 5.1 million unique viewers. He emphasized the company’s relationship with big advertisers like Anheuser Busch Inbev NV (ADR) (NYSE:BUD), which he said is getting a good return on investment from Twitter video ads.
That is where the company’s investment is going, Dorsey said. “We will increase headcount in engineering and product design,” he said. “Audience growth, audience engagement and monetization are most important” to the company.
While the company’s main office is in San Francisco, Dorsey was thinking a lot about New York during the conference call. “We have tremendous demographics, people that are hard to reach,” saying the company gets engagement from young consumers who are abandoning regular TV. Dorsey bragged that 95% of its video ads play to completion, even with the sound on.
“We have over 200 premium content relationships,” he added. “We hand-select these relationships,” meaning TWTR is going after big deals with its new emphasis on video.
Bottom Line on Twitter Stock
The emphasis on TV-type advertising and TV audiences should give Twitter stock speculators a whole new area of buy-out speculation focused on TV.
With a market cap of $11.6 billion, and its emphasis on grabbing young TV non-viewers, TWTR stock is setting up to be a nice pick-up opportunity for Comcast Corporation (NASDAQ:CMCSA), the owners of NBC, the Walt Disney Co (NYSE:DIS), owners of ABC or even Verizon Communications Inc. (NYSE:VZ), the owners of the former AOL and Yahoo! Inc. (NASDAQ:YHOO), now called Oath.
Those who see TV streams, and TV advertising, as the great new horizon for internet advertising are going to prick up their ears at Twitter stock. That, at least, is the hope.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
