Twitter, Inc.'s Revenue Growth Nearly Grinds to a Halt

By Daniel Sparks Markets Fool.com

Shares are down about 10% on Thursday after Twitter's (NYSE: TWTR) as investors digest the company's slowing revenue and user growth reported in its fourth quarter. But there were a few bright spots in the company's earnings release as well. Here's an overview of Twitter's fourth-quarter performance.

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The raw numbers

Metric

Q4 2016

Q4 2015

Change

Revenue

$717.2 million

$710.5 million

1%

Net loss per share

($0.23)

($0.13)

($0.10)

Non-GAAP net earnings per share

$0.16

$0.16

none

Data source: Twitter's fourth-quarter earnings release. Table by author.

Twitter's fourth-quarter revenue of $717.2 million nearly ground the company's year-over-year revenue growth rates to a halt. At just 1% year-over-year growth, the rate is down significantly from Twitter's 8% year-over-year growth in the company's third quarter.

While Twitter's revenue was below analysts' expectations for the quarter, analysts' fourth-quarter forecasts likely represented quite a bit of guesswork, as management opted to not provide any revenue guidance for revenue leading up to the fourth quarter, citing uncertainty surrounding how the company's reorganization of its sales force would impact revenue.

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"Because the effects of this transition could have an impact on the company's revenue performance, there is a wider range of potential revenue outcomes," management explained in its third-quarter shareholder letter when discussing fourth-quarter guidance.

Quarterly highlights

  • Monthly active users were 318 million, increasing just 0.6% sequentially, down from sequential growth of 1.3% in the company's third quarter.
  • Daily active users increased a nice 11% year over year, marking an acceleration from previous quarters. Management said progress in this key metric was driven by better defining what Twitter is to the public, new product features, and simplified business operations that made execution more efficient.

Chart source: Twitter.

  • Engagement improved. "We also saw continued, strong double-digit engagement growth on a year-over-year basis across Tweet impressions and time spent on Twitter in the fourth quarter," management said.
  • Data licensing revenue, which accounts for just over 10% of the company's total revenue, increased 14% year over year during the quarter.

Outlook

In 2017, Twitter said it wants to make Twitter safer, strengthen its core offerings, further simplify and differentiate its revenue products, and focus on driving toward GAAP profitability.

Twitter headquarters. Image source: Twitter.

Notably, Twitter did not provide revenue guidance for the first quarter or for the full year, but management did suggest that 2017 likely won't be a great year for Twitter when it comes to the trajectory of its revenue:

As previously stated, we expect advertising revenue growth to continue to lag that of audience growth in 2017. Advertising revenue growth may be further impacted by escalating competition for digital ad spending and the reevaluation of our revenue product feature portfolio, which could result in the de-emphasis of certain product features.

But the company is more optimistic about its forecast for user metrics, noting that it expects strong double-digit engagement growth for Tweet impressions and time spent on Twitter to continue.

Further, management believes there's more potential for its data licensing revenue: "In addition, we believe we can more aggressively grow our data licensing revenue with a more brand-centric approach to channels, markets, products, and pricing," management explained. "This approach will position both Twitter and our key channel partners for greater growth and monetization." As an example, Twitter cited its new channel partnership with Sprinklr, aimed to drive "market innovation for large enterprises." The partnership "is a multi-year deal, totaling more than $90 million, with collaboration in product development, sales, and marketing," Twitter said.

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Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.