Please ensure Javascript is enabled for purposes of website accessibility

Twitter Put Up Its Second Quarter of Profits… So Why'd the Stock Slip?

By Motley Fool Staff – Apr 30, 2018 at 6:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ubiquitous short-message social media company looks to be getting its financial feet under it.

In this segment of the MarketFoolery podcast, host Chris Hill gets a rare Earningspalooza visit from Hidden Gems' Abi Malin, who joins him to discuss Twitter's (TWTR 2.57%) first-quarter earnings report. It's growing in all the right ways, but Wall Street was unenthused Thursday, and the share price got dinged.

The Fools talk about the strong spots from the report, the culture and directions of the company, and the weaknesses that are making investors mildly concerned -- its ad revenue model in particular.

A full transcript follows the video.

This video was recorded on April 25, 2018.

Chris Hill: Let's start with Twitter. First quarter profits for Twitter were just that, they were profits, and this is the second quarter in a row that Twitter was profitable. Their international growth is up. Why is this stock down today? It's not falling off a cliff, but it's down a little bit. This was a good quarter. They're growing. What's going on here?

Abi Malin: I think there were really three bright spots of this quarter. The first was that revenue growth. Total revenue was up 21%. The second was, audience and engagement continued to increase. These are things we look at with social media platforms generally. This was moving in the right direction. That hasn't always been the case for Twitter. The last point that was good for them this quarter was that there was meaningful progress in safety and information quality work. Historically, Twitter has had a little bit of a reputation for being argumentative, for lack of a better term.

Hill: Is that because the people on Twitter can be argumentative?

Malin: All of the above. But I think right now, there's a few questions or some lack of clarity around the whole ad revenue model anyway. Just generally speaking, we saw the Facebook trials, I think people are just sort of apprehensive in this space.

Hill: Although, it does seem like advertisers as a group have essentially moved Twitter further up their priority list. There was a pretty decent stretch there where, if you were a major advertiser -- look, you always have plenty of options, but in terms of social media, Twitter wasn't growing in such a way or performing in such a way that it made as compelling a case for advertisers as it appears to be making today.

Malin: Definitely. Strong ad engagements this quarter. They had improved return on investments, better sales execution. Total ad engagements, generally speaking, were up 69% year over year. A lot of this is due to improved video ads and higher click-through rates. Cost per engagements were actually down 28%, and that's just because video ads generally have a lower CPE than others.

I think Twitter has maybe been disregarded for an extended period, and maybe there's sort of a twist in things. I also think Jack Dorsey was really strategic in this call. He kept making a lot of comments regarding privacy. I pulled one quote. He actually said, "So, we believe that privacy is the fundamental right for everyone we serve on our service. Our data business is something we continue to feel really good about. We are different from our peers in that Twitter is public. We serve the public conversations, so all of our data is out in the public, out in the open." So, I think he's really just trying to draw the distinction between Twitter and the unnamed Facebook here.

Hill: I was just going to say, and who do we think that's directed at? [laughs]

Malin: [laughs] Yes, definitely.

Hill: First of all, that's great that he said that, so thank you for going through that call, because I hadn't gone through the call. And it does speak to something I have been wondering about, particularly since Mark Zuckerberg made his trip to Capitol Hill, because as I was watching that play out, I did think to myself, "Someone has to be enjoying this. Maybe it's Jack Dorsey. Someone has to be watching Zuckerberg under the lights," and he handled himself better than I thought he would.

Malin: I thought he was very commendable.

Hill: Yeah, he really was. But I thought, "Boy, someone really has to be enjoying this." And maybe that's an overstatement about Dorsey. But, good for him for throwing a couple of elbows on the conference call.

Malin: Definitely a couple elbows.

Hill: I'm curious why you personally are not on Twitter. Just because, you're engaged in social media, but for whatever reason, you're like, "You know what? I don't need that."

Malin: I think I use really limited social media. I have a Facebook, I have a Snapchat, reluctantly. I don't use Instagram, actually, and I don't ever even consider using Twitter, just because I think it's just not a positive space. I see people around here use it for news, but I just don't know that I ...

Hill: It's not working for you.

Malin: Yeah, it's not that I need it.

Hill: One last thing on the stock, it's down a little bit today. This thing has basically doubled in the past year. Is it safe to assume that what we're seeing in terms of the pullback of the stock has to do with that, has to do with the fact that, look, this thing has had a great run over the past 12 months, and maybe it's not moved into the position where they needed a perfect quarter to move the stock higher, but you've had a pretty good 12 months.

Malin: Yeah, I mean, I think it could be that. Again, I just think it's general sentiment. I don't think we've necessarily seen peak Twitter. I think this is a business that continues to reinvent itself. I think management here is really open and being very adaptable. I think it's probably more interesting than it's ever been to me as an investment idea, but I don't necessarily think that this was priced for perfection and that was the pullback.

Abi Malin owns shares of Facebook. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$43.84 (2.57%) $1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.