In a year’s time, Twitter TWTR -2.36% has gone from a company that can do no right to one that can’t do right enough. Both have their downsides.
The latter sentiment was most evident Wednesday after the company reported strong first-quarter results. Advertising revenue jumped 21% year over year to $575 million. That not only contrasted sharply with the 11% decline reported a year ago but also marked the best performance for Twitter’s main source of revenue in two years. The company also added six million users to its monthly base, which had remained flat at 330 million users for the preceding two quarters. Total revenue for the quarter exceeded Wall Street’s targets by 10%.
But that didn’t prove enough to keep Twitter’s already highflying stock airborne. The shares reversed quickly from an initial gain to fall over 3% by midday.
The company noted that growth in the latter half of the year won’t look as good due to tougher comparisons. It didn’t help that the stock already had surged by 27% in 2018, mostly on the strength of the company’s last quarterly report. Those results made Twitter a standout performer in the internet sector, particularly against the likes of advertising-driven peers Facebook and Google-parent Alphabet Inc.—both of which have been beaten down by worries about privacy and the potential effects of government regulation.
Twitter isn’t immune to those fears, but the company began the year with an even bigger concern—the notion that its business had peaked less than four years after becoming a public company. The past two quarterly reports suggest that such fears are premature. Twitter also has now generated real earnings for two consecutive quarters—an encouraging sign that shows that a social network doesn’t need to reach Facebook-like scale to be profitable.
Yet Twitter remains very expensive relative to those earnings. Even Wednesday’s decline keeps the stock at more than 200 times Wall Street’s projected GAAP earnings, nearly 10 times the multiple that Facebook and Alphabet command on the same measure. Against that bar, Twitter’s results were simply never going to fly high enough.
Write to Dan Gallagher at dan.gallagher@wsj.com