Earnings season is about to kick into high gear. Two big reports Wall Street will be watching are Facebook Inc (NASDAQ:FB), which is scheduled to report on July 23, and Twitter Inc (NYSE:TWTR), which is scheduled to report about a week later, on July 29.
Facebook will probably beat
In a report dated July 10, 2014, Bernstein analysts Carlos Kirjner and Peter Paskhaver said they think it’s likely that Twitter will beat on both revenue and EBITDA. However, they say sell-side could be behind buy-side expectations, which means the setup going into earnings is difficult. They see the most important issues as being the “evolution of like-per-like pricing,” Instagram monetization, and mobile ad network monetization.
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
The Bernstein team thinks Facebook makes for a “potentially attractive trade” at prices in the low $60s or high $50s. However, they’re still unsure about whether pricing will increase “on a like-per-like basis” enough to come out ahead of expectations. They note that ad load and user growth are becoming less important in North America and Western Europe, which are where most of Facebook’s ad revenues come from.
Can Facebook keep it up?
The analysts say it will be difficult for Facebook to keep up the current growth rate for its revenue during the second half of the year and going into next year, basing it only on News Feed revenue growth. They note that in the social network’s two main regions, user growth is expected to be in the low single digits in the second half of this year. If the ad load doesn’t significantly increase in these areas, then growth in revenue will come mostly from price increases “on a like-for-like basis.” However, they say this will be more difficult than simply increasing inventory because it requires ad performance to improve so that advertisers will pay more per impression.
In addition, they note that News Feed pricing is going to have to increase less while Facebook ramps up revenues from Instagram. As a result, any management commentary about monetization progress for Instagram will be important for investors.
When Facebook reports its earnings this month, the Bernstein analysts are looking for $2.867 billion in revenue and non-GAAP earnings per share of 31 cents. That’s compared to consensus estimates of $2.799 billion in revenue and earnings of 32 cents per share.
Twitter still about user growth
When it comes to Twitter, the Bernstein analysts said the story is still about user growth trajectory. They don’t think there will be material reacceleration in this area. They’re expecting 266 million users, with 58 million of them being domestic.
In terms of monetization and revenue per user, they expect irregular evolution of the next few quarters. Twitter will continue launching new products, while advertisers will learn how to use them. They note that it’s still early in the company’s effort to build a marketing network similar to Facebook Inc (NASDAQ:FB)’s Preferred Marketing Developers network. In fact, they say some of the same marketers who partner with Facebook have now signed on to partner with Twitter.
They’re expecting $162 million in domestic advertising revenues and $2.80 average revenue per user. Those numbers are an 84% increase and 55% increase year over year, respectively. They expect $92.6 million in international revenue and quarterly average revenue per international user of 46 cents. That’s a 180% increase and 128% increase year over year, respectively.
Where Twitter investors should focus
While investors have been hyper-focused on user growth, the Bernstein analysts say they should be looking at the company’s efforts to improve the user experience. Specifically, they say investors should take note of onboarding and its effect on user growth trajectory. Also they believe the impact of new ad formats should be noted, including app install ads, which they think could significantly impact near term monetization to the positive.
The analysts think Twitter stock probably won’t trade up significantly unless there is a “massive beat” because there is another lockup expiration coming up next month. When the microblogging company reports its earnings later this month, they are looking for $281 million in revenue and non-GAAP losses of 2 cents per share. Those numbers compare to consensus estimates of $281 million in revenue and losses of 1 cent per share.