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Twitter's User growth the only concern in an otherwise robust earnings

Twitter's User growth the only concern in an otherwise robust earnings (Part 1 of 4)

Twitter’s User growth the only concern in an otherwise robust earnings

Twitter’s user base has not grown fast enough

Twitter (TWTR) announced its Q1 2014 earnings in which its revenue increased at a commendable 119% to $250 million, but was not enough to make Wall Street happy. Despite the healthy revenue growth, Twitter’s stock fell by 12% in the after-market hours on Tuesday as investors worried about its user growth. Twitter’s sequential user growth has slowed down in the past 4 quarters as shown in the below chart. Moreover, Twitter’s worldwide monthly active users of 255 million dwarfs when compared with 1.28 billion monthly active users for Facebook (FB), which means Twitter has not been able to scale up fast enough.

Twitter User GrowthEnlarge Graph

Increased user engagement helping Twitter’s revenue growth

In addition to Facebook, Twitter competes with Google (GOOG), Yahoo (YHOO) and Microsoft (MSFT) in the online advertising market. Although Twitter’s user base has not increased at a fast rate, the company has managed to increase user engagement over the last one year. Twitter’s advertising revenue per 1,000 timeline views increased 96% year-over-year to $1.44, where timeline views can be considered equivalent to the page views. U.S. ad revenue per 1,000 timeline views reached $3.47 in Q1, up 78% year-over-year and international ad revenue per 1,000 timeline views reached $0.61, up 152% year-over-year. Timeline views increased to approximately 157 billion in Q1, up 20 billion or 15% from the same quarter last year and up 9 billion or 6% from the fourth quarter.

Twitter raising its revenue outlook range for 2014

Twitter now expects its revenue range for 2014 to be between $1.2 billion and $1.25 billion, $50 million above its previous range. Twitter’s Q1 revenue growth was driven by key live events such as the Super Bowl, Winter Olympics, Oscars and Grammys, although there will be less number of events in Q2. Despite this, Twitter expects its Q2 revenue  to grow to $270 million to $280 million on the back of the main event the World Cup.

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