A security guard stands next to the Twitter Inc. logo displayed in the lobby of JPMorgan Chase & Co. headquarters in New York, U.S. (Photographer: Scott Eells/Bloomberg)  

Twitter Faces High Earnings Bar After Facebook, Snap's Surprises

(Bloomberg) -- Twitter Inc. has a lot to live up to when it reports earnings on Thursday morning after better-than-expected results from rivals Facebook Inc. and Snap Inc. sent their shares soaring.

With its move into new advertising formats such as video and efforts to improve user experiences with a crackdown on spam and harassment, some analysts see Twitter also beating Wall Street’s projections. The social media company is expected to report fourth-quarter revenue growth of 19 percent for a total of $867.1 million, according to the average of 32 estimates compiled by Bloomberg.

“We expect improved advertising execution and likely upside to consensus/guidance,” Raymond James analyst Aaron Kessler, who has a market perform rating on the stock, wrote in a research note.

Twitter Faces High Earnings Bar After Facebook, Snap's Surprises

Twitter so far has managed to boost sales despite stagnant user growth. Monthly active users are expected to total 324 million in the fourth quarter, down from 326 million in the previous quarter, according to the average of five estimates compiled by Bloomberg News. The San Francisco-based company’s shares have gained about 6 percent since Facebook reported revenue that exceeded estimates on Jan. 30 as advertisers continued to spend money on its platforms despite privacy scandals.

The shrinking pool of monthly active Twitter users has increased focus on daily users, which continue to grow. BMO Capital Markets analyst Daniel Salmon expects daily users to expand by 10 percent in the fourth quarter, compared with the year earlier, up from 9 percent growth in the third quarter.

In addition to engagement, analysts are focused on revenue growth relative to the number of users. Mark Mahaney, an analyst with RBC Capital Markets, projects ad revenue per monthly active user to rise 19 percent compared with year-ago period.

The options market is signaling a 13 percent change in the share price following the earnings release. That’s in-line with the average move after the last eight reports, which were evenly split between gains and declines.

About 8.5 percent of the open interest in Twitter is set to expire this week, with calls outweighing puts by 29 percent. The most widely held contracts are the $38 calls, which implies an 12 percent rally from current levels. Despite shares being up 18 percent year-to-date, implied volatility is elevated at 205 percent versus a three-month historical average of 59.

Just the Numbers

  • 4Q revenue estimate $867.1 million (range $836.0 million to $902.0 million)
  • 4Q adjusted EPS estimate 25c (range 19c to 34c)
  • 4Q adjusted Ebitda estimate $348.1 million (range $328.0 million to $397.0 million)
  • 4Q monthly active users estimate 324 million (5 estimates)
  • 1Q revenue estimate $766.1 million (range $725.0 million to $812.0 million)
  • 1Q adjusted Ebitda estimate $282.4 million (range $252.0 million to $315.0 million)

Data

  • 12 buys, 22 holds, 6 sells
  • Average price target $33 (3% downside from current price)
  • Implied 1-day share move following earnings: 13%
  • Shares fell after 7 of prior 12 earnings announcements
  • Adjusted EPS beat estimates in 12 of past 12 quarters

Timing

  • Earnings release expected 7 a.m. New York time on Feb. 7
  • Conference call starts 8 a.m.; follow on TOPLive blog
  • Conference call website

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