Major Turnaround Ahead for Twitter Stock
When a stock dips below its initial public offering (IPO) price, you know it’s in trouble. Since last November, Twitter Inc (NYSE:TWTR) has been trading below its IPO price of $26.00. In the past 12 months, Twitter stock plunged a staggering 66.6%.
The company is reporting earnings again. Will it spark a turnaround? Or will it spell the end for TWTR stock?
Well, let’s take a look at what analysts are expecting first.
Overall, expectations are quite high for the social media company. Wall Street analysts are predicting earnings of $0.10 per share, which would imply a 42.9% increase compared to the same quarter last year. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 22, 2016.)
Revenue growth is expected to be equally impressive. For the reporting quarter, analysts are expecting a 39.4% year-over-year increase in revenue to $607.8 million.
When the bar is set so high, it might be a bit difficult to reach it. But then again, in all four quarters of 2015, Twitter managed to beat Wall Street’s earnings-per-share (EPS) estimates every single time by a wide margin.
This time, there are quite a few catalysts that could help the company deliver another earnings beat.
First up is video. Last year, the company added native video capabilities to Twitter. By December 2015, video views on Twitter skyrocketed 220 times the views in December 2014. Notably, when Walt Disney Co (NYSE:DIS) decided to unveil the first full trailer of Star Wars Episode VII: The Force Awakens, the company released it first on Twitter. (Source: “Twitter Q4 and Fiscal Year 2015 Shareholder Letter,” Twitter Inc, February 10, 2016.)
The company also owns live video streaming app “Periscope.” The platform allows anyone with an Internet connection to broadcast and watch videos live with others. Most recently, Twitter added Periscope to its main social media app. Viewers can live stream Periscope directly from a Tweet.
What this means is more monetizing opportunities. For Twitter, video ads are more lucrative compared to text and image ads. Moreover, video ads are also in line with native advertising because they fit nicely with the other content. The increasing viewing of Twitter videos could boost the company’s advertising revenue in the reporting quarter.
Another catalyst is logged out users. For many years, Twitter didn’t really monetize on the more than 500 million logged-out visitors to its social media platform. Then, in the fourth quarter of 2015, the company started rolling out promoted tweets to logged-out users. With more than 500 million more people added to its audience, Twitter could get a lot more business from marketers.
Of course, the company still has a major issue to address: user growth. If you look into Twitter’s user growth history, you’d see that the company’s userbase has been increasing year-over-year. However, on a sequential basis, the situation looks a lot more worrying.
In the fourth quarter of 2015, Twitter’s monthly active users (MAUs) totaled 320 million, exactly the same as in the third quarter. Stalling user growth is never a good thing, especially when you are the smaller player in the game. Industry leader Facebook Inc (NASDAQ:FB), not only has a much larger userbase of 1.59 billion, but it also managed to grow its MAUs by three percent sequentially from Q3 to Q4 2015. (Source: “Facebook Q4 2015 Results,” Facebook Inc, January 27, 2016.)
However, there is a decent chance for Twitter to report better results on that metric in this earnings announcement. The company said earlier this year that “as of the end of January, we have already seen total MAUs, excluding SMS Fast Followers, return to Q3 levels.” (Source: Twitter Inc, op cit.)
The Bottom Line on TWTR Stock
Twitter will release its first-quarter financial results on Tuesday, April 26 after the markets close. If the company manages to improve both its userbase and bottom line, we might see a trend reversal in TWTR stock.