Why Twitter and eBay Stumbled After Hours

The blue chips scored another win but Twitter and eBay disappointed in their earnings reports.

Jeremy Bowman
Jeremy Bowman
Apr 29, 2014 at 10:00PM

Stocks pushed higher again today on strong earnings reports from big names including Merck, and momentum stocks that had fallen over the past few days bounced back. By the end of the day, the Dow Jones Industrial Average (DJINDICES:^DJI) finished up 87 points, or 0.5%, coming within 100 points of its all-time trading high, as Merck led the blue chips with a 3.6% gain. Meanwhile, the S&P 500 gained 0.5%, and the Nasdaq moved up 0.7% on the recovery in tech and momentum stocks. 

Consumer confidence levels remained strong in April, according to a report from the Conference Board, whose surveyed rated 82.3, close to a six-year high. That mark was actually down from March's total at 83.9, though that figure was revised up 82.3. Also promising was the expectations component's improvement to 84.9, its highest level since last August, indicating that consumers believe the economic recovery will continue toward full health. 

Some big-name Internet stocks were falling after hours today following their earnings releases. Twitter (NYSE:TWTR) shares were down 11% in the extended session as investors were disappointed by the service's user growth. The upstart social network said monthly active users increased from 5.8% in the previous quarter, or 25% from a year ago, to 255 million, which was too slow a pace to convince Wall Street that user growth can accelerate. Timeline views, another key company metric that drives ad sales, increased 15% to 157 billion, short of some expectations.

On the financial side, Twitter beat expectations as it stepped up its monetization of users. Adjusted earnings per share came in at breakeven, better than the $0.03 loss Wall Street was expecting, and revenues jumped 119.7% to $250.5 million, ahead of the consensus at $241.7 million.

Finally, its revenue outlook for the full year was in line with estimates at $1.2 billion to $1.25 billion.

I wouldn't be too quick to dismiss Twitter after today's report as the company has only just started monetizing its service. Sky-high user growth may not be necessary if Twitter can prove that its platform is particularly valuable to advertisers.

Shares of eBay (NASDAQ:EBAY) were also heading south, down 4% after hours on its earnings release. The online auctioneer actually beat estimates in the quarter past with a per-share profit of $0.70, ahead of the consensus at $0.67, though its guidance disappointed as it sees current quarter EPS of $0.67-$0.69 against estimates of $0.70.

PayPal continued to be a strong performer for eBay as payment volume grew 27% to drive $1.8 billion in revenue, making up close to half of the company's sales.

eBay also took a $3 billion non-cash tax charge to repatriate some foreign earnings, giving it more cash to buy back shares and adding "financial flexibility."

Considering the better-than-expected quarter and in-line guidance for the full year, I'd say today's sell-off seems exaggerated.