Why Twitter Fell 23% in April

Is this meaningful, or just movement?

Jamal Carnette, CFA
Jamal Carnette, CFA
May 5, 2015 at 1:02PM
Technology and Telecom

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What: Shares of microblogging site Twitter (NYSE:TWTR) fell 22.8% in April, according to S&P Capital IQ data, as concerns about revenue growth outweighed a positive report from a financial standpoint. To make matters worse, the company accidentally posted earnings before the bell, having them uncovered by financial platform Selerity.

So what: It seems beleaguered CEO Dick Costolo can't catch a break. The company posted non-GAAP EPS of $0.07 per share versus $0.04 expected from analysts. On an adjusted EBITDA basis, a heavily watched metric for Twitter investors, the company also performed better than expectations by posting $104 million, above its prior guidance of $94 million. In addition, the company grew monthly active users, or MAUs, nearly 5% on a quarter-over-quarter basis to match expectations of 302 million MAUs -- a notable gain from the 1.4% sequential gain last quarter.

However, the company's full-year guidance was underwhelming on many levels. As for the top line, Twitter guided for $2.17 billion-$2.27 billion, a figure that's 4.9% lower than earlier figures of $2.32 billion-$2.35 billion at the respective midpoints. As for the adjusted EBITDA guidance, that figure was guided down a larger 7.1%. As a result, the stock closed the next day down 18% as investors sold the stock off in droves.

Now what: Perhaps the biggest issue with Twitter's earnings were the fact they were posted before the official release time. Selerity leaked Twitter's earnings at 3:07 p.m., about an hour earlier than their scheduled release and during the daily trading session. And although the leak was actually the fault of Nasdaq subsidiary Shareholder.com (which hosts Twitter's investor relations page), the situation appeared to confirm -- even if incorrectly so -- preexisting opinions that Twitter isn't a well-ran organization, operationally.

Because the leak will eventually be forgotten, Twitter's future will be won or lost on its ability to grow and monetize its user base. Right now, the company is experimenting with monetization on a host of fronts. And although the company did not match analyst expectations, Twitter did grow total revenue 74% on a year-over-year basis. If the company can continue to grow its top line at that healthy clip, it's possible this short-term pessimism is a great buying opportunity.