Twitter Earnings to Signal Whether New Moves, Deals Are Working

(Bloomberg) -- Shares of Twitter Inc. were slipping about 1% ahead of the social media platform’s quarterly earnings results and forecasts, due for release early Friday morning.

“A number of product initiatives, including the first quarter’s camera update and the major desktop user interface redesign launched in July, should support user growth throughout the year,” Canaccord’s Maria Ripps wrote in a note. But, she said that slowing second-half revenue growth and a heightened expense outlook may weigh on shares.

A 33% run-up in the stock this year has left several investment banks on the sidelines. SunTrust maintains a hold rating on Twitter as valuation exceeds that of its peers and the share price appears “fair” given the growth and margin profile of the business, analyst Youssef Squali wrote.

The key metric to watch will be monetizable daily active users, or mDAU, Ripps said, as Twitter faces tougher revenue comparisons and margin compression. She expects 11% growth this year, as engagement increases on initiatives that should improve user experiences. She flagged fresh partnerships, including pacts with Univision, the Wall Street Journal, the NFL and ESPN. She rates Twitter hold.

Meanwhile, Rosenblatt’s Mark Zgutowicz said the firm was “moderately cautious on second-half revenue expectations given slightly more challenging” comparisons versus the first half. He initiated Twitter at neutral earlier this week, as “platform engagement has been heavily influenced by ‘the Trump effect,’ which looks to have peaked.”

Others were even less optimistic. “Twitter, after a resurgence across its domestic and international businesses last year, now has to live up to those stellar results,” MoffettNathanson’s Michael Nathanson said in a note. He expects executives on the conference call will signal an “impending top-line slowdown,” which will come “just as spending to clean up Twitter’s platform is set to ramp, creating an ominous cloud over the stock.”

While second-quarter results “may very well be strong,” Nathanson warned there may be a “correction ahead,” as revenue growth is set to slow “meaningfully” in the third-quarter, after lapping the U.S. business’s recovery last year. He rates the stock sell with the Street’s lowest price target.

At UBS, intra-quarter ad checks point to “solid end-demand trends,” especially for video and among brand advertisers, with favorable pricing economics and more user engagement,” analyst Eric Sheridan wrote in a note.

Investors will probably focus on ad revenue trends and the trajectory of user growth and engagement, he said, given Twitter’s efforts to remove fake or suspicious accounts. They’ll likely also seek commentary on regulatory risks, including from privacy rules, like Europe’s GDPR and U.S. data privacy legislation.

Elsewhere, Wedbush’s Michael Pachter expects second-quarter results will come in at the high end of the company’s guidance, and foresees “continued momentum with newer ad products and formats,” like the Video Website Card and the Video App Card, along with “improved engagement from product changes.”

He forecasts net mDAU growth of “only roughly 1 million.” Though there may be upside to that estimate, he expects any positive “delta” may be “relatively muted, given the relatively minimal changes to user interface we observed during the quarter.” He also expects “continued but moderating growth in the third quarter with some pressure on margins.”

ESTIMATES

• 2Q adjusted Ebitda estimate $287.4 million (range $261.0 million to $325.0 million) (Bloomberg data)
• 2Q revenue estimate $829.3 million (range $800.0 million to $853.0 million)
• 3Q adjusted Ebitda estimate $309.3 million (range $282.0 million to $351.0 million) (BD)
• 3Q revenue estimate $872.0 million (range $851.0 million to $910.0 million)
• 2Q additional metrics (Bloomberg MODL)
  • Monthly active users est. 333.9m
  • Monetizable daily active users est. 135.4m
    • U.S. 27.8 million
    • International 107.4 million
• Bloomberg Intelligence, July 23: Twitter Results Aided by Engagement, Cleanup Goes On: 2Q Preview

DATA

• 11 buys, 24 holds, 7 sells
• Avg PT $38.04 (0.9% downside from current price)
• Implied 1-day share move following earnings: 11.2%
• Shares rose after 6 of prior 12 earnings announcements
• Adjusted EPS beat estimates in 12 of past 12 quarters
• Shares down 13.3% in past year vs SPX Index up 5.5%
• For deeper estimates, see TWTR US MODL

TIMING

• Earnings release expected 7am (New York time) July 26
• Conference call website

--With assistance from Janet Freund and Ryan Vlastelica.

To contact the reporters on this story: Felice Maranz in New York at fmaranz@bloomberg.net;Kamaron Leach in New York at kleach6@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk, Brad Skillman

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