Twitter Inc (TWTR) Earnings Preview: Is An Upside Surprise Even Possible?

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Twitter Inc (TWTR) Earnings Preview: Is An Upside Surprise Even Possible?
<a href="https://pixabay.com/users/ElisaRiva/">ElisaRiva</a> / Pixabay

Twitter Inc (TWTR) is set to release its next earnings report on Wednesday before opening bell, and Wall Street is expecting $512 million in revenue, non-GAAP earnings of 1 cent per share, and adjusted EBITDA of $94 million. Sentiment on the company remains extremely low, so it’s hard to imagine how this company could surprise to the positive.

Twitter may miss revenue

In an earnings preview note dated April 21, MKM Partners analyst Rob Sanderson warned that the revenue consensus looks a bit “aggressive” to him, as it’s far above the midpoint of what was an extremely wide range. Management had guided for $429 million to $559 million in revenue for the first quarter, which implies a decline of 3% to 28% year over year.

Sanderson explained that the high end of that unusually wide range assumed a return to trends observed in the first few weeks of January, while the midpoint represented trends from mid-January through the fourth quarter earnings release on Feb. 9. He said that the low end of the guidance range assumed a de-emphasis on some direct response ad products and noted that there haven’t been any announcements of de-emphasized products.

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However, he added that there also isn’t any evidence of a significant improvement in the “selling environment” as the first quarter went on.

Competition and momentum are critical

The MKM analyst feels that in the wake of the Snap Inc. IPO, competition became a key focus for Twitter Inc (TWTR), especially given that management suggested that there was a sudden change in ad bookings in the middle of January due to an “aggressive competitor,” he said. As such, it looks like the competition for digital ad dollars is escalating further.

Sanderson warned that some key influencers have been reducing their engagement with the micro-blogging platform, turning instead to Instagram in some categories such as sports, music and entertainment.

Still monitoring user growth

He noted that Twitter’s monthly active user growth stood at 3% to 4% throughout last year, but management said that daily active user growth accelerated for four consecutive quarters to reach 11% in the fourth quarter. He feels that daily active users is a better engagement metric and will probably become the standard, and anything less than high-single-digit growth in daily active users would be disappointing.

On the other hand, he feels that growth in the double digits is needed to keep whatever optimism that’s left still alive. He doesn’t expect Twitter Inc (TWTR) to start releasing daily active users on a quarterly basis in this quarter, but he estimates this metric to be about 146 million in the last quarter. Sanderson has a Neutral rating and $16 per share fair value estimate on Twitter Inc (TWTR) stock.

Wedbush analyst Michael Pachter also has a Neutral rating on Twitter Inc (TWTR) stock, but it’s paired with a $13 per share price target. He’s looking for $534 million in revenue, $98 million in adjusted EBITDA, and non-GAAP losses of 2 cents per share. He expects growth in video to partially offset continuing weakness in the rest of the company’s ad products.

He is looking for “minimal” user growth and is projecting a 3% sequential decline in monthly active users in the U.S. and an increase of 0.5% internationally. He doesn’t expect the company’s video initiatives and user interface changes to drive higher monthly active users.

Shares of Twitter Inc (TWTR) stock edged upward by as much as 0.41% to $14.70 during regular trading hours on Monday.

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