What are the key revenue drivers for social media companies, and how does the market react to surprising new information about them?
Visible Alpha’s analysis of earnings announcement surprises in social media finds that user growth is the key to unlocking the outcome in social media’s earnings announcements. Beating or missing the consensus on user growth yields outsized returns on the announcement day: we estimate 2.7% excess daily return following the announcement per 1% user growth surprise. The strong earnings response coefficient on user growth exceeds that of EPS, revenue, or the monetization part of the revenue handily.
Data set includes all quarterly pre-announcement consensus estimates and the actual value of the metrics from Q2 2014 to Q1 2022.