A must-read overview of Twitter’s third quarter 2014 earnings

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Nov. 20 2020, Updated 4:12 p.m. ET

Twitter disappointed investors with 3Q14 results

Twitter (TWTR) continues to produce robust revenue growth. Twitter even raised its guidance for 4Q14 revenue as well as its adjusted EBITDA[1. Earnings before interest, tax, depreciation, and amortization]. However, as the chart below shows, despite raising revenue guidance for the fourth quarter, Twitter’s year-over-year revenue growth rate would slow down considerably.

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Plus, Twitter gave below-expected results for its monthly active users (or MAU) metric. This metric grew by a year-over-year rate of only 4.8% to 284 million in 3Q14. This was much slower than the 6.4% growth that it achieved in 3Q13 and the 5.9% that it achieved in 2Q14. These factors made investors worry, resulting in Twitter’s stock declining by about 14% since it announced its results on October 27. The results could not sustain Twitter’s stock momentum that had run up by almost 40% in the last three months prior to the earnings announcement.

Twitter's revenue growth rate

Twitter’s taking a number of initiatives to grow its business

Despite continued growth, Twitter is still a minuscule player in the online advertising market. Google (GOOG)(GOOGL) continues to dominate this market, with Facebook (FB) making rapid gains. Twitter earns its revenues from two segments: online advertising and data licensing, with online advertising contributing about 90% to Twitter’s revenues. Twitter is taking a number of initiatives to grow both its businesses.

To grow its online advertising business, Twitter continues to expand its business to more international markets. It also continues to roll out new ad products, focus on improved ad targeting, and work on better returns on investment for advertisers.

Twitter is also making a lot of efforts to grow its MAUs (monthly active users). It changed its sign-up process to make it simpler for first-time users. It’s also improving its content quality and at the same time adding features to its direct messaging service to enable private conversations.

Twitter is also looking to start monetizing logged-out users—users who don’t log in to Twitter’s site but who interact with its platform. Twitter made a number of changes to its user profile pages in order to better engage these logged-out users. These users are more than Twitter’s MAUs, so it’s an important group.

Although Twitter’s other business—data licensing—contributes only 10% to its revenues, it’s a fast-growing business. To grow this business further, Twitter recently partnered with IBM (IBM) to analyze its user data through IBM’s analytics tools. Data analysis helps businesses glean insights on how users perceive their products and services.

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