Twitter (TWTR) Q3 Loss Narrower Than Expected, To Lay Off

Twitter, Inc. (NYSE:TWTR) shares are up nearly 5% in pre-market trading following its third-quarter 2016 earnings report. Twitter’s adjusted loss per share of 10 cents came in narrower than the Zacks Consensus Estimate of loss of 15 cents per share. Plus, revenues of $615.9 easily beat the Zacks Consensus Estimate of $605.9 million.

Twitter also announced a cut in its workforce. The company is planning to reduce 9% of its workforce worldwide, resulting in over $10 to $20 million of cash expenditure (mostly severance packages) and another $5 to $10 million of non-cash expenditure. Twitter reportedly has over 3.8K employees.

Layoffs had long been anticipated as the company intends to chart a solo strategy to turnaround things. It’s a no-brainer that cost cutting will be an integral part of the strategy. Buyout rumorsintensified last month only to fizzle out later as all potential suitors, right from Alphabet (NASDAQ:GOOGL) to Salesforce (NYSE:CRM) and The Walt Disney Company (NYSE:DIS) , apparently pulled out of the race. A hefty price tag was widely considered to be the major reason behind he withdrawal of once-interested suitors apart from flailing user growth and advertising revenues. Not to forget, the infamous trolling that has been accused of scaring away interested buyers.

Amid a plethora of problems, CEO Jack Dorsey has a Herculean task to pacify agitated investors. Dorsey’s strategy of focusing on live and user friendly changes isn’t exactly adding much to the numbers.

Reflecting on quarterly revenues, on a year-over-year basis, revenues just grew 8.2%. This is the company’s lowest gain since it went public. Revenue growth has been decelerating over the last several quarters.

Plus, Twitter did manage to record user growth, but again it wasn’t jaw dropping. Twitter’s users grew from 313 million monthly average users (MAUs) to 317 million MAUs this quarter, up 1.3% sequentially. Mobile MAUs were 83% of total MAUs. Average DAUs grew 7% year over year.

Quarterly Numbers in Details

The company posted non-GAAP earnings per share of 13 cents per share, up from 10 cents earned in the year-ago period.

Twitter’s advertising revenues increased a mere 6% year over year to $545 million. Also, there was a 91% year-over-year surge in ad engagements but cost per ad engagement was down 44%, given the shift to auto play video, which has lower cost per view compared with click to play.

Mobile advertising revenues contributed 90% to total advertising revenue in the quarter. Data licensing and other revenues soared 26% to $71 million.

Twitter earned nearly 40% of its revenues from international markets. International revenues rose 21% year over year to $242 million in the reported quarter. U.S. revenues increased a mere 1% year over year to $374 million.

The company reported 28% increase in adjusted EBITDA to $181 million. Adjusted EBITDA margin was 29%, up from 25% in the year-ago quarter.

Twitter reported an operating loss of $78.1 million, which compared favourably with a loss of $105.2 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

At the end of Sep 30, 2016, cash and cash equivalents (short-term investments) were $3.66 billion compared with $3.49 billion at the end of Dec 31, 2015. For the first nine months, cash flow from operations was $566.5 million and adjusted free cash flow was $332.9 million.

Outlook

Given the extensive restructuring, Twitter hasn’t provided revenue guidance for the current quarter as well as the full year. For 2016, adjusted EBITDA margin is expected to be 27.5% to 28%. Adjusted EBITDA is expected to be in the band of $700 to $715 million. Capex is limited to a maximum of $360 million as against earlier expectations of around $300 million to $375 million.

At present, Twitter carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>