Twitter (TWTR) posted strong 1Q results that topped analysts’ expectations, driven by 30% growth in advertising revenue. However, shares of the social media giant plunged 11.5% in Thursday’s extended trading session, as the company warned of rising costs in 2021 and provided 2Q revenue guidance which lagged consensus estimates.
Total revenue grew 28% year-over-year in 1Q to $1.04 billion versus the consensus estimate of $1.03 billion. Adjusted earnings increased 45.5% to $0.16 per share, beating Street estimates of $0.14 per share.
Meanwhile, Twitter’s average monetizable daily active usage (mDAU) jumped 20% year-over-year to 199 million but fell short of analysts’ expectations of 200 million. Notably, the company recorded strong growth in mobile application promotion (MAP) revenue and brand advertising.
Costs and expenses in the quarter grew 21% year-over-year to $984 million, while stock-based compensation (SBC) expense was $111 million, up 13%.
The company said, “We are attracting more great people to Twitter than ever before and investing in our highest priorities to deliver on our long-term goals across consumer product, revenue product, and platform. As a result, we now expect headcount growth to more closely mirror expense growth in 2021, with headcount — and total costs and expenses — growing 25% or more on a year-over-year basis in 2021, ramping in absolute dollars over the course of the year.”
“We continue to expect total revenue to grow faster than expenses in 2021, assuming the global pandemic continues to improve and that we see modest impact from the rollout of changes associated with iOS 14.5,” the company added. (See Twitter stock analysis on TipRanks)
For 2Q, total revenue is anticipated to be in the range of $980 million to $1.08 billion versus analysts’ estimates of $1.06 billion. A sequential increase in SBC expense of $60 million or more is anticipated.
For 2021, the company forecast stock-based compensation expense to be around $600 million, up from the prior range of $525 million to $575 million. Capital expenditures are expected to be between $900 million and $950 million.
Following the 1Q results, Oppenheimer analyst Jason Helfstein decreased the stock’s price target from $85 to $70 (7.5% upside potential) and maintained a Buy rating as he views “TWTR well-positioned to benefit from reopening momentum related to live events and brand advertising rebound.”
“While the market reacted to weaker 2Q outlook, following upbeat investor day, we are more upbeat on product cadence and expect Brand strength in 2H:21…Longer-term, we believe mgmt. has the levers to drive monetization, including Topics, business profiles and future subscription products,” the analyst added.
Wall Street analysts are cautiously optimistic about the stock. The Moderate Buy consensus rating breaks down into 14 Buy ratings, 19 Hold ratings, and 1 Sell rating. The average analyst price target stands at $75.31 and implies upside potential of 15.7% to current levels. That’s after shares jumped 65% over the past six months.
TipRanks data shows that financial blogger opinions are 70% Bullish on TWTR, compared to a sector average of 66%.
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