Twitter (TWTR): Top Analyst Outlines the Odds Ahead of Q1 Earnings

RBC Capital's Mark Mahaney predicts the Street's expectations for Twitter are "reasonable" ahead of Q1 results- from the sidelines.

Can Twitter (NYSE:TWTR) social media giant prove to impress once more after realizing a profit, a record move seen in the fourth quarter of 2017? The fourth quarter likewise experienced a 12% surge in daily active users, and it seems with Wall Street buzzing on an anticipation high this morning, investors may be angling for another earnings hit from the first quarter.

Top analyst Mark Mahaney at RBC Capital spotlights positive traffic trends and encouraging overall industry sentiment towards online marketing that points to solid EPS results for the first quarter. Upside looks “more likely than downside when it comes to Twitter’s ability to achieve Street expectations for the quarter and Mahaney furthermore believes Twitter can meet second quarter guide expectations. For context, the Street looks for 11% year-over-year growth from Twitter in its second quarter revenue and a 34% EBITDA margin.

That said, the analyst remains quite apprehensive on the sidelines in his target expectations, reiterating a Sector Perform rating on TWTR stock with a $31 price target, marking a close to 10% downside from current levels.

For the first quarter, Mahaney predicts Twitter will achieve $605 million in revenue, $200 million in adjusted EBITDA, and $0.10 in non-GAAP EPS against the Street’s estimates looking for $605 million in revenue, $206 million in adjusted EBITDA, and $0.12 in EPS. This compares to the TWTR team’s revenue guide calling for $561 to $603 million and adjusted EBITDA guide set between $185 and $205 million.

“Note that the company has exceeded its revenue guide in 11 of the last 15 quarters and its EBITDA guide in all of the last 15 quarters. A key stock factor, however, remains Twitter’s MAU metrics—the Street is looking for 5MM MAU Net Adds in Q1 vs. 9MM in Q1:17, which seems appropriately conservative,” adds the analyst.

While the analyst notes Twitter’s MAU base rose 4% year-over-year in the fourth quarter to 330 million, he watches for a deceleration to 2% year-over-year in the first quarter, which translates to a net add of 5 million MAUs to 335 million MAUs. The analyst expects U.S. MAUs will see a 1 million quarter-over-quarter jump to 69 million, calling the U.S. a big region for the company considering its monster monetization rate. Meanwhile, advertising is the company’s key revenue line, continues Mahaney, who notes this takes up a roughly 88% slice of Twitter’s total revenue. Ad revenue climbed 1% year-over-year in the fourth quarter to $645 million, and the analyst anticipates growth to continue in the first quarter on an 11% surge year-over-year to $525 million.

Mahaney shares his final takeaways on Twitter as the company gears up to dish out its first print of the year: “1) […] In March 2018, RBC Capital Markets conducted a survey of more than 750 advertising professionals to gauge overall industry sentiment toward Online marketing. We generally saw clearly intrinsically positive results for Twitter, with an increase in overall budget allocations to Twitter and positive ROI perceptions as well as an improvement in spend intentions. These results indicate relatively positive Q1 EPS results. 2) Positive Traffic Trends – Based on U.S. Multi-platform data, we saw positive comScore traffic trends for Twitter in Q1:18. Multi-Platform Unique Visitors increased 52% Y/Y in Q1 QTD, improving from 45% growth in Q4 though on a 4-pt easier comp.”

Mark Mahaney has a very good TipRanks score with a 69% success rate and a high ranking of #21 out of 4,774 analysts. Mahaney realizes 22.6% in his annual returns. However, when recommending TWTR, Mahaney forfeits 31.7% in average profits on the stock.

TipRanks indicates caution rules the Street on this recovering social media giant. Out of 25 analysts polled in the last 3 months, 4 are bullish on TWTR, 15 remain sidelined, while 6 issue a Sell on the stock. With a loss potential of 5%, the stock’s consensus target price stands at $28.82.

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