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Why it's happening
Twitter's third-quarter revenue continued the pace of blistering growth it has been on in recent quarters, as a $361 million top line represented a 114% year-over-year improvement. The company also reported adjusted earnings of $0.01 per share on adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, of $68.3 million, both of which represent significant improvement over the year-ago quarter's loss of $0.13 per share on adjusted EBITDA of just $9.3 million.
Twitter's top-line result was better than the $351.6 million projected by Wall Street, and it hit analysts' adjusted EPS target of $0.01. Twitter's bottom line also looked better on a generally accepted accounting principles basis, although it still showed a steep loss of $0.29 per share, compared to the $0.48 loss per share in the year-ago quarter.
Twitter's user base was up 23% year over year to 284 million monthly active users, or MAUs, with mobile MAUs accounting for roughly 80% of the total. However, the company was up by only 13 million users (a gain of 5%) over the second quarter; Twitter's timeline views were up only 14% year over year, which indicates the company's newer users are not engaging with its product very frequently. This metric also grew by less than 5% over the second quarter's result. That didn't stop Twitter's ad revenue per thousand timeline views from jumping 83% year over year to $1.77.
Twitter now expects to generate between $440 million and $450 million in revenue for the fourth quarter -- below the $448 million top-line consensus -- with adjusted EBITDA ranging from $100 million to $105 million. The combination of slow user growth and underwhelming fourth-quarter guidance led to a number of analyst downgrades: RBC, Merrill Lynch, and Nomura all dropped their ratings from buy to hold; Stifel Nicolaus cut its rating to sell; and more than a dozen analysts reduced their price targets on Twitter's stock.
For the full year, Twitter expects to earn $1.365 billion to $1.375 billion, with $260 million to $265 million in adjusted EBITDA. Both ranges top Wall Street's expectations for $1.362 billion in revenue and $245 million in adjusted EBITDA. However, expect steep GAAP losses to continue, as full-year stock-based compensation will range from $630 million to $640 million, not including any potential acquisition-related equity awards.