1Q18 TAKEAWAYS
- Heightened revenue acceleration across the board: Well above our expectations and consensus. Total revenue growth accelerated by 19 percentage points. Both Advertising and Data Licensing segments accelerated double-digits, with ad revenues 10% above consensus and core O&O ad revenue growth accelerating by 21 percentage points. Autoplay video ads remained its largest growth driver, but we also estimate that legacy CPC ad revenue also returned to y/y growth (more in 3rd bullet).
- TWTR also reported that revenue per impression increased: Despite declining CPEs across most major ad formats, which collectively confirms our original thesis that Autoplay monetizes at a higher effective CPM, and that TWTR's model is now built for sustainable growth as ad mix continues to shift toward Autoplay.
- But ad load returned to growth: This was the one blemish from the print. We estimate that the y/y increase in legacy ad revenue came off of an increase in ad load, which is somewhat concerning since we also estimate that legacy CPC remains the overwhelming majority of its ad load, and that surging ad load is what we believe led to its restructuring. That said, this is something we need to monitor moving forward.
- Mgmt tempered its 2018 outlook: TWTR guided ahead of the street for 2Q18 on both EBITDA and implied revenue, but cautioned on 2H18 suggesting a return to 2016 seasonality. We don't see this as anything more than managing expectations on the heels of a considerable 1Q18 beat. Note the mid-point of TWTR's implied 2Q18 revenue growth is slightly below its 1Q growth rate despite what should be another quarter of accelerating growth given the tailwind from the Olympics. TWTR's seasonality comments suggest 3Q18 revenues should be largely inline with what appears to be a sandbagged 2Q18 guide, so we suspect mgmt bought itself some breathing room for its 3Q guide as well.
Let us know if you have any questions or would like to discuss in more detail.
