Written by Norman Isaac Mwambazi

Twitter share price surges after the release of an earnings report that exceeded expectations

Yesterday, microblogging and social networking service Twitter Inc. (ticker: TWTR) released its earnings report for the second quarter of the …

Yesterday, microblogging and social networking service Twitter Inc. (ticker: TWTR) released its earnings report for the second quarter of the 2021 fiscal year (Q2 FY2021) in a conference call with the Twitter Chief Executive Officer (CEO) and co-founder Jack Dorsey along with other top executives of the company in attendance.  

The report was filled with positives highlighting how Twitter exceeded its own and consensus analysts’ expectations for Q2 FY2021. The company continues to benefit from the COVID-19 pandemic that has forced people to spend more time on social media and streaming services, among other things, on the internet.

This was reflected in Twitter’s user books, which showed that the service added over 7 million registered users in the last three months. Top executives have called this a “better-than-expected performance across all major products and geographies” for the company.

As we all know, more users almost mean more revenue, and this has proved to be true for Twitter. Its Q2 FY2021 earnings report shows that the company earned $1.19 billion, increasing 74% year over year.

To put this performance in contrast, Twitter’s revenue in Q1 FY2021 only grew by 28%, but that was a drop of 19% from the close of Q4 FY2020. According to CNBC Business, this is Twitter’s strongest growth since 2014.

Advertising, which is the most significant revenue stream for Twitter, racked in 1.05 billion in Q2, an 87% increase year over year. On a constant currency basis, this growth is 85%. Constant currency is an exchange rate used to eliminate the effect of fluctuations in different currencies when companies are calculating financial performance numbers for publication in financial statements.     

As more users spent more time on the site, Twitter ads were served to more people in Q2 FY2021, and this led to the growth of engagement on these ads by 32% year over year, which translated into a Cost Per Engagement (CPE) increase of 42% in the same period.  

Data Licensing, another revenue stream for Twitter, also saw a double-digit percentage growth in Q2. Twitter reported that it earned $137 million from data licensing to companies, representing a 13% growth year over year.

In the U.S., where Twitter has the most users (73.2 million), Twitter’s revenue was $653 million in Q2 FY2021, representing a growth of 79% year over year. Revenue from the U.S. takes the most significant chunk of Twitter’s overall revenue, beating revenue coming from other countries combined.

As the U.S. took over the role of Twitter’s biggest revenue earner, the rest of the world (international revenue) brought in $537 million for the company. This is a 69% growth year over year or 64% on a constant currency basis.

However, the company reported a decline in U.S. daily active users from 38 million to 37 million in Q2. Talking about this decline, Dorsey said that they are tackling this by ensuring that when people open Twitter for one reason, however small that is, they can see a much broader universe that is a lot more relevant to them than it was in the past.

While talking about Twitter’s performance, Jessica Liu, the Senior Analyst in B2C Marketing at global market research and advisory company Forrester Research Inc. (ticker: FORR), said that Twitter is still riding the broader digital wave that was stimulated by the coronavirus pandemic, noting that “Consumers have increased their time spent on social media, online shopping, gaming, and streaming T.V. among others,” as quoted by Market Watch.

After posting these stellar results yesterday, Twitter’s share prices surged in late trading Thursday evening and continued to do so in today’s pre-market trading session. The company saw its stock rise 5.7%, and it is currently trading at $72.24 a share, which is a gain of 3.84% today alone. 

Speaking of shares, Twitter’s net income of $65.6 million in Q2 FY2021 translates into eight cents a share, however after adjusting for stock-based compensation and other operation costs, Twitter’s Q2 earnings stand at 20 cents a share.

According to financial data company FactSet, Wall Street analysts had projected Twitter’s earnings to be 7 cents a share on revenue of $1.06 billion, including ad revenue of $926 million. When you compare this estimate to the figures quoted above from Twitter’s earnings report for the second quarter of 2021, it is clear that its performance has exceeded expectations.  

According to market data provided by Market Watch, the Twitter stock has risen by 81% in the past year, and it is up nearly 29% year to date. These figures outperform the benchmark S&P 500 index by a wide margin, which has grown by 16% year to date, and it is up 35% in the past 52 weeks.

A company’s good performance means many things; Investors and shareholders smile all the way to the bank, management can use the profits to expand the company’s operations, improve products, invest in Research and Development (R&D), improve employee welfare, and even hire more, among others.

The last bit is what Twitter top execs are planning to do, as Ned Segal, the company’s Chief Financial Officer (CFO), hinted at hiring more workers for the San Francisco-based company. Segal attributed Twitter’s performance to a growing audience in the U.S. and internationally, improved ad products available to advertisers on the platform, strong sales execution, increased broadcast and reporting of global events, and advertiser product launches.

For Q3 FY2021, Twitter expects its Generally Accepted Accounting Principles (GAAP) operating income to be between a loss of $50 million and total revenue of between $1.22 billion and $1.3 billion. This revenue is still higher than what consensus analysts project, which is $1.17 billion. Twitter market capitalisation stands at $56.5 billion.

Twitter’s competitors in the ad-based social media business also reported strong growth, with companies like Snapchat (ticker: SNAP), Facebook (ticker: F.B.), and Google’s parent company Alphabet (tickers: GOOGL, GOOG), all-seeing their shares rise in after-close trading hours. Trillion-dollar companies Facebook and Alphabet are reporting their earnings next week.