Twitter (TWTR) to Report Earnings Thursday; How Will Stock React?

Twitter (TWTR) is set to release fourth-quarter earnings before the opening bell on Thursday, as investors are hoping the social network continues to show strong financial results. Wall Street analysts are expecting the company to grow revenue 18.9% in Q4, which seems attainable after strong Q2 and Q3 performances, where revenue grew at 24% and 29% year-over-year, respectively. Furthermore, after four straight quarters of turning a profit, Twitter is expected to maintain this, and continue to show investors it has matured as a company. Nevertheless, the company expects monthly active users to decline in Q4, as it did in Q2 and Q3 following the implementation of GDPR and Twitter’s removal of spam and hoax accounts.

Ahead of the earnings release, Wedbush analyst Michael Pachter remains Neutral on the company, with a $37 price target, which implies about 8% downside from from the stock is currently trading. (To watch Pachter’s track record, click here)

Pachter expects “continued momentum with new ad products and formats (e.g., the Video Website Card and the Video App Card) and initiatives designed to improve the user experience and eliminate suspicious accounts, benefitting the quality of paid impressions and ad yields as a result,” even as the number of users decreases.  The analyst estimates “sequential revenue growth in Q4 of 17%,” just lower than the Wall Street consensus.

On users, Pachter says the user decline in Q3 “was attributed to the impact of GDPR implementation, platform health and safety initiatives, and the decision to forego paid SMS carrier relationships in certain markets, along with product changes that impacted automated usage.” In Q4, he expects the company to see a “a mid-single-digit decline in millions of MAUs, associated with the impact of ongoing platform health initiatives,” and has modeled for a “worldwide MAU decline of 3 million in Q4.”

Looking to 2019, Pachter anticipates “a return to MAU growth in 2019 as churn becomes more normalized.” Furthermore, he expects Q1 revenue to hit $760 million, which would be up 14% year-over-year compared to 21% the previous year. Profitability will also increase, according to Pachter, up to $304 million or 26% year-over-year, while margins rise to 40% of revenue. After a few rough years, Twitter is continuing to prove itself as a viable business, even as increased scrutiny on social media company in the US and regulation in Europe are playing a part in decreased usership and have the potential to increase challenges ahead.

Wall Street isn’t completely sold on Twitter. TipRanks analysis of 13 analysts shows a consensus Moderate Buy rating, with 6 analysts recommending Buy, 5 recommending Hold and 2 recommending Sell. The average 12-month price target on the stock is $34.42, representing a modest 1% increase from its current price. (See TWTR’s price targets and analyst ratings on TipRanks)


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