Twitter Earnings Preview: Revenue And User Growth In Focus

When Twitter Inc TWTR reported Q3 earnings, year-over-year revenue declines weren’t as bad as they had been in the two prior quarters, which management took as a sign of their progress on returning the company to revenue growth.

Once TWTR reports Q4 results before the open on Thursday, Feb. 8, investors could get an idea of whether or not that was a reversal of the trend seen in recent quarters, or just a one-off improvement.

For Q4, TWTR is expected to report adjusted earnings per share of $0.14, down two cents compared to last year, on revenue of $690 million, according to third-party consensus analyst estimates. Revenue is projected to decline 3.8% year-over-year, a small improvement from last quarter’s 4% drop. Management also previously issued guidance saying they expect adjusted EBITDA between $220 million and $240 million in the fourth quarter, and that “we will likely be GAAP profitable” if results come in at the high end of that range.

Beyond the top and bottom line, user metrics for social media networks are closely followed by analysts due to the fact that the platforms generate a bulk of their revenue from advertising, and the companies purchasing ads typically want to see an engaged, growing community. In Q3, TWTR reported that monthly active users increased 4% year-over-year, hitting a new high of 330 million. At the same time, daily active users climbed 14% year-over-year, matching Q1 performance.

Another area that analysts and investors are likely to dig into is TWTR’s live streaming and video efforts. In Q3, video remained its largest ad format, driven by strength in in-stream sponsorships and in-stream video ads, according to the company. It’s been a little over a year since it launched live streaming of premium content and TWTR announced 30 new partnerships and 10 international deals when it reported Q3 results. Management is likely to give an update on its live-streaming progress as it has in recent quarters.

And finally, with the recent departure of COO Anthony Noto, second in command behind CEO Jack Dorsey, analysts and investors might be looking for some more clarity about filling that role. The announcement indicated that other members of Twitter’s leadership team would be assuming his responsibilities for business operations and revenue-generating operations. Over the years, TWTR has seen a lot of leadership turnover. 

TWTR SINCE START OF Q4. Twitter (TWTR) gapped up on high volume when it reported Q3 results and the stock is up 47.69% since the start of Q4, hitting a new 52-week high of $27.33. The stock has seen some support around the $24 level since late December and it bounced off the low of $24.10 during yesterday’s session. Chart source: thinkorswim^® from TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Twitter Options Trading Activity

TWTR has had quite a run since the start of Q4 and shares recently hit a new 52-week high of $27.33 at the start of February. Around the upcoming earnings release, options traders have priced in about a 10.7% potential share price move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility is at the 81st percentile as of this morning. This data was pulled at 9:30AM ET and could shift depending on trading activity leading up to the report.

In short-term trading at the Feb. 9 weekly expiration, calls have been active at the 25 and 26 strike prices while puts have seen a smattering of activity across a range of strikes, with the highest volume at the 22.50 strike, a decent ways out of the money. At next week’s Feb. 16 monthly expiration, calls have also been more active at the 25 and 26 strike prices while trading on the put side has been heavier at the 23 and 25 strikes.

A few strikes further out at the Jun. 15 monthly expiration had higher volume during yesterday’s session; there were three larger trades at the 28-strike call, the 33-strike call and the 20-strike put, each one comprised of 2,000 contracts. Those trades were twice the size of the next closest ones.       

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Looking Ahead

Next week brings earnings action from some major consumer brands: PepsiCo, Inc. PEP, The Coca-Cola Co KO and Kraft Heinz Co KHC are all scheduled to report. Some of the other major companies on tap include Deere & Co DE, Baidu Inc BIDU, Applied Materials, Inc. AMAT and Cisco Systems, Inc. CSCO.

There’s also a few economic reports to consider keeping an eye on that are scheduled for release next week: The Consumer Price Index and Retail Sales for January on Wednesday, Feb. 14, the Philadelphia Fed Manufacturing Index and the Producer Price Index on Thursday, Feb. 15, and January building permits on Friday, Feb. 16. For a look at what else is happening across markets, check out today’s Market Update.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.