Ahead of its earnings report, Twitter (NYSE:TWTR) topped out at $35 before sliding, down 9.6% on the week. Investors did not like Twitter’s idea of re-defining metrics to represent its business. MAU is the industry standard, mDAUs, or monetizable DAU, is growing at 10% annually.
But at a 16 times P/E and a market cap some 20 fold smaller than that of Facebook (FB) stock, investors should not get scared off from the company’s quarterly report.
Twitter believes monetizable DAU is the best way to measure its success. This metric creates a complication for markets: it is not comparable to numbers used by its competitors. It could add confusion for customer advertisers. In the near-term advertisers will not know what they are paying for and what value they are getting from their spend. The figure also hides user growth in activity, especially those who are not classified as monetizable.
On its earnings call slide (see #5), MAU fell 9% Y/Y but revenue rose 24%. The microblogging site may attract more ad revenue per user but falling activity is never good for any social networking firm.
Costs are up slightly from last year. GAAP cost of revenue rose to $268 million, up from $218M last year. CEO Jack Dorsey said it is applying machine learning and AI to increase the effectiveness of its internal agents. Still, the ramp on expenses will pressure profits. That could keep the stock price underperforming for a while longer.
