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Feb 6, 2019

Twitter faces high earnings bar after Facebook, Snap surprise

The Twitter Inc. logo is displayed on the screen of an Apple Inc. iPhone 6s in this arranged photograph taken in New York, U.S.

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Twitter Inc. (TWTR.N) 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 per cent for a total of US$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 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 per cent in the fourth quarter, compared with the year earlier, up from 9 per cent 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 per cent compared with year-ago period.

The options market is signaling a 13 per cent 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 US$38 calls, which implies an 12 per cent rally from current levels. Despite shares being up 18 per cent year-to-date, implied volatility is elevated at 205 per cent versus a three-month historical average of 59.

Just the Numbers

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

Data

  • 12 buys, 22 holds, 6 sells
  • Average price target US$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