Revenue grew 1% Y-o-Y to $717 million, a huge slowdown versus the 48% gain a year earlier
Online social networking and microblogging site Twitter Inc. (NYSE: TWTR) announced its Q4 FY16 and full-year FY16 financial results on February 09th, 2017.
The San Francisco, California-based company offers products and services for users, advertisers, developers and platform and data partners. The Company’s service is live commentary, live connections, and live conversations. Products and services for users include Twitter and Periscope. Its Twitter is a platform for public self-expression and conversation in real time. By developing a way for people to consume, create, distribute and discover content, Twitter helps users in content creation and distribution. The public nature of the Twitter platform allows it and others to extend the reach of Twitter content beyond its properties.
Its mobile application, Periscope lets users broadcast and watch video live with others. Pairing Periscope with Twitter gives broadcasters greater distribution and the ability to integrate into its revenue products. Read more about Twitter’s financial results below.
Q4 FY16 financial highlights
During Q4 FY16, Twitter’s revenue grew 1% Y-o-Y to $717 million, a huge slowdown versus the 48% gain a year earlier. Advertising revenue totaled $638 million, down slightly Y-o-Y. Twitter-owned-and-operated advertising revenue was $553 million, down 1% Y-o-Y. Strength in video was offset by Y-o-Y declines in revenue generated from traditional Promoted Tweet and direct response ad formats. Non-owned-and-operated advertising revenue reached $85 million, or 13% of advertising revenue, roughly flat Y-o-Y. Significant gains in revenue from the Twitter Audience Platform were offset by significant Y-o-Y declines in revenue from TellApart.
During Q4 FY16, Twitter reorganized its partnerships, sales, and marketing organizations to better align and execute against its key priorities. To better serve its ad partners, Twitter reduced the number of sales channels from three to two. Its advertising business continues to skew toward large branded advertisers in the US and Canada with above-average growth in a few select international markets.
By product, video continued to be Twitter’s single largest revenue-generating ad format. Strong growth in video, including in its live-streaming, Twitter Amplify, and First View ad formats, was offset by Y-o-Y declines in traditional Promoted Tweet and direct response ad formats.
Total GAAP expenses in Q4 FY16 were $861 million, an increase of 11% Y-o-Y, driven by higher restructuring costs. Reductions in sales and marketing expense were offset by increases in cost of revenue due to higher revenue share, infrastructure costs, and depreciation. Traffic acquisition costs were $45 million, or 52% of non-owned-and-operated advertising revenue, compared favorably to 61% in Q4 FY15 and 56% in Q3 FY16.
Stock-based compensation (SBC) expense was $138 million, a Y-o-Y decline of 13% in Q4 FY16, to 19% of revenue, down from $159 million, or 26% in the previous quarter, and below the $150 million to $160 million forecasted range. Twitter ended Q4 FY16 with over 3,500 employees.
Twitter’s GAAP loss from operations for Q4 FY16 widened to $144 million versus $67 million in the year-ago same period. Adjusted EBITDA for Q4 FY16 improved to $215 million, or 30% of total revenue, an increase of 12% Y-o-Y. Adjusted EBITDA excludes restructuring costs of $101 million. GAAP net loss for Q4 FY16 was at $167 million, resulting in GAAP diluted EPS of ($0.23). Non-GAAP net income was $119 million and non-GAAP diluted EPS was $0.16.
Ad metrics: During Q4 FY16, mobile advertising revenue was 89% of total advertising revenue. Data licensing and other revenue jumped 14% to $79 million. US revenue fell 5% to $440 million, while International revenue grew 12% to $277 million. Total advertising engagements were up 151% Y-o-Y. Cost per engagement (CPE) was down 60% versus Q4 FY15.
Total ad engagements grew 151% Y-o-Y, driven primarily by a continuing mix shift toward video ad impressions, as well as higher clickthrough rates (CTR) across nearly all ad formats on a like-for-like basis. Average CPE fell 60% Y-o-Y, again due to a higher mix of video engagements, as well as significantly lower video CPE compared to the prior year. On a sequential basis, total yield per impression improved compared to Q3 FY16 for the second consecutive quarter, driven both by a mix shift toward higher yield ad formats as well as higher CTR across several ad formats.
User metrics: Average monthly active users (MAUs) grew 4% Y-o-Y to 319 million for Q4 FY16 and compared to 317 million in Q3 FY16. Average US MAUs were 67 million for Q4 FY16, up 3% Y-o-Y and flat compared to 67 million in Q3 FY16. Average international MAUs were 252 million for Q4 FY16, up 5% Y-o-Y and compared to 250 million in Q3 FY16. Mobile MAUs represented 83% of total MAUs.
Average daily active usage (DAUs) grew 11% Y-o-Y from 7% in Q3 FY16, 5% in Q2 FY16, and 3% in Q1 FY16. Tweet impressions and time spent on Twitter also remained strong with each increasing by double digits in Q4 FY16 on a Y-o-Y basis.
Content: Twitter’s live streaming content focuses on three key areas of strength — news and politics, live sports and eSports, and live entertainment. Additionally, people from all over the world now broadcast live content from a variety of devices, including phones, drones, and GoPros, powered by Periscope. During Q4 FY16, Twitter streamed more than 600 hours of live premium video from content partners across roughly 400 events, attracting 31 million unique viewers. Of these, 52% were sports, 38% were news and politics, and 10% were entertainment.
Twitter provides significant value to its live premium content partners, helping them extend their reach globally with approximately 33% of unique viewers outside the US, and helping them reach a younger audience with approximately 50% of viewers under the age of 25. In 2016, Twitter onboarded nine syndication partners and four over the top partners to further expand live content distribution.
In live sports, Twitter’s 10-week NFL #TNF programming was the major highlight of Q4 FY16. Twitter completed the #TNF season with success, generating more than 3.5 million unique viewers on average, per game. Twitter also broadcasted 6.6 million hours of live video through Periscope, while making significant product updates, while creating new, immersive video formats like 360 video.
FY16 financial highlights
For FY16, total revenue jumped 14% to $2.5 billion. Full year GAAP net loss was $457 million, or ($0.65) per diluted share, with full year non-GAAP net income of $406 million, or $0.57 per diluted share. Adjusted EBITDA for the full year improved by nearly $200 million, reaching $751 million with a 30% margin and exceeding the forecasted range of $700 million to $715 million and the Company’s initial forecasted range of 25-27% for adjusted EBITDA margin. Adjusted EBITDA margin improved to 30% of revenue, compared to 25% for the previous year.
Cash and cash flow: Twitter ended FY16 with $3.8 billion in cash, cash equivalents, and marketable securities. GAAP net cash provided by operating activities in the period was $197 million. Adjusted free cash flow for Q4 FY16 was $111 million compared to approximately $12 million in Q4 FY15. Adjusted free cash flow generated for the year totaled $444 million, compared to less than $5 million in 2015. Twitter had $3.8 billion in cash, cash equivalents, and marketable securities at the end of 2016.
Annual stock-based compensation expense for the year, on an absolute basis, fell 10% Y-o-Y and declined over 600 basis points Y-o-Y as a percent of revenue, reaching 24% in 2016, down from 31% in 2015 and 45% in 2014.
Shuts down Vine, sells Fabric: Twitter announced on October 27th, 2016, that it would shut down its the video-sharing mobile app Vine in the coming months, even as it moves to cut 9% of its workforce worldwide to reduce costs. The decision comes after a failed attempt to sell Twitter as it fights against stagnating user growth, slowing revenue, and intense competition from rival social media platforms. The restructuring efforts, including the current layoffs and shutting down Vine could save Twitter $50 million to $100 million per year going forward.
Vine’s user numbers have dwindled by million in recent years, while Twitter has integrated video sharing directly into its main mobile apps and experience, while also trying its hand at live video with Periscope. In June 2016, Vine sought users to beta test a longer video feature, but Twitter sounded the death knell for Vine when it took a stance to not support separate apps, only its core mobile apps and social network. Twitter also recently made Periscope videos viewable directly within the main Twitter app.
Twitter also announced on January 18th, 2017, that Google has agreed to buy Fabric, which makes software for mobile apps.
Exit of top brass: The most recent exit of the Twitter’s top brass came in the form of Kathy Chen, Twitter’s managing director of Greater China, as reported by Reuters on January 02nd, 2017. Kathy, based out of Hong Kong, said she quit the Company after a restructuring in the Asia operations. Kathy joined Twitter in April 2016 and has claimed that revenue from Chinese ad partners surged almost 400% over the past two years. Although Twitter is blocked in China, it works with advertisers in the country that are looking to reach a global audience.
In November 2016, Parminder Singh, the former managing director for Twitter in India and the Middle East, left the Company. On December 21st, 2016, Twitter’s Chief Technology Officer Adam Messinger left Twitter for greener pastures. On November 10th, 2016, Chief Operating Officer Adam Bain quit the Company. Chief Financial Officer Anthony Noto took over the responsibility of Bain’s job. Vice President of Product Josh McFarland also left the Company in November 2016. Given the recent exit of top brass at Twitter, CEO Dorsey shoulders greater responsibilities and workload while being the CEO at Square Inc.
Refining core services: In recent months, Twitter has focused on refining its core services in four key areas: onboarding, the home timeline, notifications and Tweeting. The Company will focus on improving analytics that help users better understand which of their tweets have had the most impact and why. Twitter is also looking at using contact and list management features such as sorting, tagging, filtering, and grouping. A recent positive development was the complete integration of Twitter’s live-video streaming capability, Periscope, into Twitter. Twitter is also working on the much-demanded Edit feature to edit tweets.
Guidance for full year FY17
For Q1 FY17, Twitter expects adjusted EBITDA to be between $75 million and $95 million. Adjusted EBITDA margin is forecasted to be between 17% and 17.5%, and SBC to be between $125 million and $135 million. For FY17, Twitter expects total non-GAAP expenses to be flat to down 5% compared to full year 2016. SBC is forecasted to be down 15% to 20% compared to full year 2016 and capital expenditures are expected to be between $300 million and $400 million.
Twitter’s stock finished the day at $15.58, slipping 5.06%, at the close on Friday, February 10th, 2017, having vacillated between an intraday high of $16.00 and a low of $15.50 during the session. The stock’s trading volume was at 72,973,705 for the day. The Company’s market cap was at $11.73 billion as of Friday’s close.