Since the onset of COVID-19, social media platforms have been at the center of a tug of war between an uptick in user engagement and ad spend reductions. The problem, though, is that usage engagement is all fine and dandy, but these platforms’ revenue streams are mostly from advertising.
Twitter (TWTR) is no different. The social networking site was early to recognize the issue of lower ad spend when it withdrew its previous guidance in March.
Wedbush analyst Michael Pachter is “anticipating results in-line with revised commentary,” when Twitter reports Q1 earnings on Thursday, April 30.
The analyst believes that, at the midpoint, the guidance withdrawal suggests a drop of approximately $68 million (roughly 9%) in revenue growth along with a pruning of operating income by $15 million, compared to Twitter’s prior estimates.
“While some expenses have been reduced as a result of COVID-19 disruption, the revenue impact was anticipated to offset any savings,” Pachter noted.
Pachter calls for Q1 revenue of $780 million (down 1% year-over-year), adjusted EBITDA of $211 million, and non-GAAP EPS of $0.12. The figures are above Street expectations of $776 million, $201 million, and $0.10, respectively.
For Q2:20, Pachter is calling for revenue of $750 million (a year-over-year drop of 11% along with a quarter-over-quarter decline of 4%) and adjusted EBITDA to come down year-over-year by 27% to $209 million.
As expected, throughout the quarter, Twitter has seen an increase in user activity. Along with the guidance withdrawal, management noted strong growth in mDAUs (monetizable daily active users), reckoning quarter-to-date mDAUs of roughly 164 million, an increase of 8 million since the end of Q4. Pacther doesn’t expect much of an uptick in this department in the next quarter, estimating 164 million mDAUs in Q2, and believes “shares appear close to fully valued at present.”
Pachter said, ”While the magnitude of the decline in advertising spend in the wake of the COVID-19 outbreak is unclear, the direction is clearly negative, and ad spending is likely to decline around the same percentage as the decline in GDP for the quarter. Some portion of ad spending is likely to shift online, so Twitter may see a more modest decline.”
All in all, Pachter maintains a Neutral rating on Twitter shares, along with $30 price target, which is in-line with the current share price. (To watch Pachter’s track record, click here)
So, that’s the Wedbush View, what about the rest of the Street’s take? The analyst community agrees. 22 Holds vs 9 Buys and 4 Sells presents Twitter with a Hold consensus rating. The average price target is above Pachter’s, and at $32.35, implies upside of 7%. (See Twitter stock analysis on TipRanks)
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