Twitter (NYSE:TWTR) reports first-quarter earnings today. Here are the most important metrics to watch.
In Q4, Twitter's slower-than-expected user growth sparked concern among investors. Monthly active users grew by only 4% sequentially. The decline in sequential growth rates was the fifth in a row for the company. As I explained more extensively in another article, investors should hope the social site can at least maintain last quarter's 4% growth rate; with such a bullish valuation on the stock, it's imperative for Twitter to continue to rapidly grow its user base.
Advertising revenue per thousand timeline views
It's been a tough few months for Twitter stock since the company reported underwhelming user growth last quarter. The market's concerns for its growth trajectory combined with a broader market sell-off of growth stocks has weighed heavily on Twitter shares, sending them more than 40% lower from an all-time high of $75 in December.
But did slow user growth in Q4 overshadow the Twitter's impressive business performance? When it comes to monetization, it is doing exceptionally well. In Q4, Twitter's ad revenue blew past estimates. What drove the 116% year-over-year revenue growth? Mostly, the impressive 76% year-over-year growth in advertising revenue per thousand timeline views. This marked the third quarter in a row the rate actually accelerated.
Given how early Twitter is in its growth story, investors should hope Twitter can at least maintain last quarter's growth in this important metric. In other words, investors should expect ad revenue per thousand timeline views to come in at $1.30 or higher.
Twitter says one of the ways it measures engagement is by timeline views per monthly active user. But the company is careful to note that investors should expect short-term fluctuations in the metric. Certain changes to the timeline can significantly impact the metric. For instance, timeline changes Twitter implemented last quarter made each visit more valuable and effective for users, leading to fewer timeline visits. But these same changes helped drive big gains in ad revenue per 1,000 timeline views.
While volatility in the metric should be expected in Q1, it could be a bad sign if this engagement metric falls meaningfully, especially after a solid decline last quarter. In Q4, timeline views per monthly active user were down 10% sequentially and 3% year over year. With the metric hitting 613 in Q4, investors should expect Twitter to hold the metric above 600 in Q1. If the metric falls below 600, look for a sensible explanation in Twitter's earnings call later this evening.
Think of these metrics as benchmark comparisons. If Twitter deviates meaningfully from any of these expectations, seek out an explanation.
Overall, the consensus analyst estimate for Twitter today is revenue of $241 million and a loss of $0.03 per share.
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Daniel Sparks owns shares of Twitter. The Motley Fool recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.