Twitter’s (NYSE:TWTR) rather creative method of accounting is starting to enter the realm of fantasy. Being able to ‘adjust’ accounting figures is nothing new, but over the last decade, there has been an increase in the number of these adjustments. Many commentators refer to these adjusted earnings as “earnings before bad stuff”. Twitter names theirs ‘Ebitda’.
What is making many people suspicious is the difference the earnings before and after adjustments. In the latest adjusted earnings report this week, Twitter reported that it made $37 million for the first quarter of 2014. This is a large increase from the $11.7 million in adjusted earnings reported for the same period last year.
What makes it so bizarre is that the result under the official accounting rules is a loss of just over $130 million. This makes the difference between actual and adjusted earnings a staggering $168 million. This is a big jump from the difference of only around $40 million for the equivalent period last year.
Twitters explanation for this is that the costs excluded from its adjusted earnings are one time or non-recurring costs, and as such, are not part of the regular costs of running the business, so should be excluded. This method, says Twitter, shows how much the company actually made.
There is some logic to this as, for example, going public cost Twitter a one-time fee $433 million. The problem is that the percentage of ‘not relevant’ costs has now grown to 68% of the total expenses for the quarter. On top of that the total increase in revenue since last year is only 3%, but profits according to Twitter, grew by 216%.
