Twitter Inc (NYSE:TWTR) releases its first earnings report as a public company on Wednesday, and Wall Street is buzzing with expectations. Shares rose more than 2% today, as investors seem to be expecting Wednesday’s report to be positive. But are those expectations running too high? RBC Capital Markets analysts don’t think so. In fact, their estimates are slightly ahead of Wall Street’s.
Twitter expected to post losses
While Wall Street expects Twitter Inc (NYSE:TWTR) to report losses of 2 cents per share, RBC Capital analysts Mark S. Mahaney, Andre Sequin and their team expect the micro-blogging site to report a loss of 1 cent per share. They’re projecting revenue of $235 million, which is also ahead of consensus at $217 million for the December quarter.
To come up with their above-average projections, they looked at their survey of advertising professionals, which was conducted with Ad Age. They saw a number of positive results for Twitter Inc (NYSE:TWTR). For example, 40% of those who responded saw increased spending and return on investment over the last six months.
In addition, advertising spend on Twitter is expected to increase, as 60% of the advertisers they surveyed said they expect to raise their budget over the next year. And third, they said Twitter has “significant ad growth spend potential,” as 83% of advertisers said they use Facebook Inc (NASDAQ:FB) to market their products, while only 71% currently use Twitter.
What to focus on in Twitter’s results
The RBC team will be looking on three main items in Twitter Inc (NYSE:TWTR)’s report on Wednesday. They’ll be looking for trends of growth, particularly in advertising revenue, which is 90% of the company’s total revenue. In the third quarter, it sped up again to 123% growth, and the RBC team thinks this momentum can continue. They’re projecting 121% growth in this area for the December quarter.
Second, they’ll be looking at growth in users and engagement. They believe Twitter Inc (NYSE:TWTR)’s scale is “impressive,” with 232 million monthly active users as of the third quarter, a 39% year over year growth. They see a slight deceleration in growth here as well and are projecting 38% growth.
And third, they’ll be looking at the monetization gap, as Twitter Inc (NYSE:TWTR) currently monetizes its users at a far lower rate than Facebook Inc (NASDAQ:FB) does. However, they note that Twitter has been closing this gap, growing its monetization 61% year over year, compared to Facebook at 40%.
RBC Capital maintains Outperform rating
The analysts kept their Outperform rating and $60 per share price target on Twitter Inc (NYSE:TWTR) going into Wednesday’s report. They note that since this is the company’s first report as a public company, we don’t know how its shares will move after the report. However, they still believe the company can become one of the “leading utilities” on the Web, along the lines of Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOG).
They did provide a “cheat sheet” or guide for investors, however, in terms of what numbers they would see as negative, neutral or positive in Twitter’s earnings report this week.
On the positive side, they see upside driving Twitter Inc (NYSE:TWTR) shares to $70 a share based on these numbers, but they see a downside pushing shares to $40 a share if Twitter reports numbers in their negative range.