• Earnings
  • disruptive innovation

Focus on subscriptions and services in Twitter’s Q3 earnings

Analysts expect Twitter [TWTR] to report year on year revenue growth of 38%, exactly in the middle of its guidance range, but growth in its subscription verticals could spur the Twitter share price when it details third-quarter earnings on Tuesday.

The company has long depended on ad sales for its revenues, but in June the social media network launched its long-awaited subscription service: Twitter Blue. For $2.99 a month, users get access to special features such as undoing tweets.

In May it also added a tip jar function, which has so far been made accessible to a select few accounts. And on 1 September, it rolled out its Super Follows programme, where users can charge followers a monthly subscription of $2.99, $4.99 or $9.99 to access exclusive and premium content.

The shiny new features introduced by Twitter are part of a wider strategy to aggressively widen its product offering. On 20 October, the company acquired London-based startup Sphere, which operates a group chat app, for an undisclosed sum. On 6 October, it sold the mobile ad platform MoPub to AppLovin for $1.05bn in cash.

“This [MoPub] transaction increases our focus and demonstrates confidence in our revenue product roadmap, accelerating our ability to invest in the core products that position Twitter for long-term growth and best serve the public conversation” - CEO Jack Dorsey

 

CEO Jack Dorsey (pictured above) said, “This [MoPub] transaction increases our focus and demonstrates confidence in our revenue product roadmap, accelerating our ability to invest in the core products that position Twitter for long-term growth and best serve the public conversation.”

 

Twitter's Q2 performance

In the three months to the end of June, Twitter’s revenue soared 74% year-over-year to $1.19bn. This was largely attributed to a pandemic-induced drop in ad spend in Q2 2020 coupled with spend bouncing as economies started to reopen again. The quarter’s growth rate was the biggest since 2015.

Ad spend accounted for $1.05bn – or 88% of total revenue – a massive 87% rise from ad spend revenue reported in the year-ago quarter. Total ad engagements on Twitter’s platforms for Q2 2021 increased 32% and the cost-per-engagement increased 42%. The company said it expected the rollout of changes associated with iOS14.5 – and iOS update released since then – to continue to have a modest impact on ad spend.

$65.6million

Twitter's Q2 profit

The company posted a profit of $65.6m in Q2 2021, having reported a $1.38bn loss in Q2 2020.

 

Q3 guidance and expectations

Twitter expects revenue to fall between $1.22bn and $1.3bn, a bulk of it from ads.

Though it’s early days since the Twitter Blue and Super Follows rollouts, investors will be keeping a close eye on whether the company reveals user and revenue numbers.

The Super Follows program has gotten off to an anaemic start. In its first two weeks since launching on 1 September, it’s estimated to have brought in just $6,000 in US iOS revenue, according to data seen by TechCrunch.

$1.3billion

Twitter's high-end expected Q3 revenue

  

The user and revenue numbers for Twitter Blue and Super Follows are unlikely to move the share price on their own. But they could be cause for bullish or bearish sentiment.

According to Zacks, the consensus among 10 analysts is for revenue to be at the higher end of Twitter’s guided range: $1.29bn. If met, this would represent a 37.56% year-over-year increase.

The consensus among nine analysts is for earnings per share to fall 10.53% year-over-year to $0.17 per share.

 

Ad spend recovery warning

Twitter currently has 16 buy ratings, 15 hold, and two sell, MarketBeat data shows. The consensus price target of $73.21 implies an upside of 16.9% from the 21 October closing price of $65.40.

Nonetheless, Citigroup analyst Jason Bazinet has warned that investors are “just too bullish” on US internet stocks and the rebound in ad spend seen in the second quarter, as reported by MarketWatch. Bazinet identified Twitter as a stock he isn’t recommending at this moment in time.

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