Of all the social media stocks, Twitter (TWTR) has been the most frustrating for investors.
The platform is clearly valuable as a hub for news dissemination and discussion on a range of issues, highlighted in part by former President Trump, and it occupies a unique niche within the broader social media industry.
As a business, however, Twitter has been full of unmet potential. Management has struggled to explain the platform's purpose, and safety and harassment have been significant challenges. Ad targeting is lagging, and the executive team has seen high turnover.
After years of spinning its wheels, however, Twitter now appears to be hitting its stride. The company is rolling out new products like Spaces, a competitor to the audio-chat app ClubHouse, a version of Snapchat Stories called Twitter Fleets, a Substack-competitor through its acquisition of Revue, and Super Follows, a way for popular accounts to monetize themselves with things like exclusive content. Twitter also confidently ejected Trump off its platform in January, and faced virtually none of the backlash that the market initially expected.
Investors have responded to the momentum the company has been building, and the stock has doubled since the beginning of 2020.
In its fourth quarter, monetizable daily active users rose 27% to 192 million, and revenue jumped 28% to $1.29 billion. Operating income was up 64% to $252 million, and earnings per share increased from $0.15 to $0.27. Shares jumped again at the end of February when the company said at its Investor Day conference that it would double revenue from $3.7 billion in 2020 to $7.5 billion by 2023 and grow its user base to 315 million.
Data from SimilarWeb, a web traffic data service, showed that Twitter's traffic remained strong in the first quarter even as the economy began to reopen, which was expected to take attention from social media portals.
Like the rest of the social media industry, Twitter benefited from an uptick in screen time during the pandemic, along with advertisers shifting their budgets to digital channels. However, Twitter appears to have outperformed peers like Facebook and Pinterest in the first quarter, and key metrics have been moving in the right direction. According to SimilarWeb, visit duration was up 6% year-over-year and flat with the fourth quarter, a bullish indicator as engagement in that period was helped by the presidential election, a rise in coronavirus cases, and the holiday season. Total site visits were also up 30% year-over-year, and flat from the fourth quarter.
More importantly, interest in advertising on Twitter was also up. Visits to Twitter's ads onboarding page increased 11% from the fourth quarter, likely showing an increase in ad spending from the seasonally strong fourth quarter, or at least increased interest from new advertisers.
By contrast, SimilarWeb found that unique visits to Facebook declined slightly on a year-over-year basis, and Pinterest also saw a decline from the second half following an earlier spike in interest in the image discovery site.
What it means for investors
Digital advertising has proven itself to be a high-margin business at scale. The successes of Google and Facebook have clearly demonstrated that, and those effects are now becoming visible at smaller social media companies like Twitter and Pinterest.
Twitter is a unique platform with hundreds of millions of engaged users. There are ample opportunities for the company to monetize and expand with products like Space and Super Follows. Its momentum has also carried past the Trump era, which is promising as it shows that the platform is more than just a megaphone for newsmakers.
There's still work to do, but the business is in the best position it's been in during its history, and based on the numbers from SimilarWeb, investors should expect a strong quarter when the company reports on April 27. Analysts see revenue growth of 26.9% to $1.03 billion, and earnings per share rising from $0.11 to $0.14 . On the heels of a strong quarter from Snap and broader signs of an awakening in digital advertising, don't be surprised if Twitter beats those numbers.