Upcoming Earnings: Twitter And Facebook Take The Stage On Wednesday

Two of the major social media companies are scheduled to report quarterly earnings this week. Twitter Inc. TWTR reports before market open Wednesday, Apr. 25, and Facebook, Inc. FB reports after market close the same day.

Twitter Earnings and Options Activity

After several years of lagging the S&P 500 (SPX), TWTR has been outperforming by a wide margin. At a couple of points throughout 2017, the stock was trading pretty close to its multi-year low of $13.73 it hit in mid-2015. Over the past year, it has more than doubled and is up about 27 percent in 2018 alone.

CEO Jack Dorsey has shown some improvement in the business in the last few quarterly reports. When TWTR reported Q4 2017 results, it was the first time the company had ever been profitable on a GAAP basis. Daily active users were up 12 percent year-over-year, its fifth consecutive quarter of double-digit growth, and monthly active users remained flat at 330 million.

In Q4, TWTR reiterated that it remained focused on growing revenue by improving its core ad offerings, tapping into new channels of demand and introducing new ways to buy ads, and continuing to grow data and enterprise solutions. Video remained TWTR’s largest ad format in Q4 and it has been one of the primary drivers of growth in its ad business, according to the company.

For Q1, TWTR is expected to report adjusted EPS of $0.12, up a penny from $0.11 in Q1 2017, on revenue of $610 million, according to third-party consensus estimates. Revenue is projected to increase 11 percent year-over-year, which would be the company’s second quarter in a row of year-over-year revenue growth. Prior to Q4 2017, TWTR had been consistently posting year-over-year revenue declines. 

TWITTER ONE-YEAR CHART. TWTR has had quite the run over the past year, starting at a low of $14.56 and closing at $31.22 on Monday, Apr. 23. The stock has recovered a little bit from its recent pullback when short sellers were attacking the company, but it still remains a ways from a 52-week high of $36.80 it hit on Mar. 14. The bottom chart shows the stock’s implied volatility, which is just below where it was at the last time TWTR reported. Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

As you can see in the chart above, TWTR is prone to large moves around earnings. Around Wednesday’s earnings release, options traders have priced in just over a 12 percent stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was on the high end at the 92^nd percentile as of this morning.

In short-term trading at the Apr. 27 weekly expiration, calls have been active at the 30, 32 and 33 strike prices, while trading has been lighter on the put side and concentrated at the 30 and 31 strikes. Volume during yesterday’s session was highest at the 32-strike call with 6,175 contracts traded.

At the May 4 weekly expiration, there are a couple of calls that have significantly higher open interest than any other strike. At the end of yesterday’s session, there were 11,331 contracts open at the 32-strike call and 10,394 contracts open at the 35-strike call.

Further out at the May 18 monthly expiration, trading on the call side has been heavier at the 32 and 33 strikes. Again, recent trading has been lighter for puts and most of the activity has been at the 28 and 30 strikes.

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.

Facebook Earnings and Options Activity

FB has been in the spotlight plenty lately. The discovery that a data firm, Cambridge Analytica, had gained access to private information on tens of millions of FB users resulted in CEO Mark Zuckerberg being called to testify before Congress.

It seemed like Zuckerberg did a nice job before Congress as the stock rose during his two days of testimony. The news of the privacy breach broke in mid-March and Zuckerberg has said on several occasions that there hasn’t been an impact on FB’s business. For Q1, FB is expected to report adjusted EPS of $1.35 per share on revenue of $11.5 billion, according to third-party consensus estimates. Over the past eight quarters, the company has beat estimates on both the top and bottom-line.

Beyond the top and bottom-line results, the company’s daily active users (DAUs), monthly active users (MAUs) and ad metrics are the other common focuses among analysts and investors. In Q4 2017, both DAUs and MAUs increased 14 percent year-over-year, although some analysts expressed concern that DAUs declined sequentially in the U.S. and Canada, where the company earns the highest average revenue per user. In Q4 2017, the average price per ad was up 43 percent and the number of ad impressions was up 4 percent, according to the company. 

FACEBOOK 2018 CHART. FB hit a new all-time high of $195.32 after it reported Q4 2017 results. Since then, the stock has pulled back amid the recent focus on the company’s data and privacy practices. Shares have recovered from their recent low of $149.02 and have been trading around the mid-$165 range. The bottom chart shows the stock’s implied volatility, which has dropped a bit from its peak in late March.  Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around the upcoming earnings release, options traders have priced in a 5.2 percent stock move in either direction, according to the Market Maker Move indicator. Implied volatility was at the 73^rd percentile as of this morning.

In short-term trading at the Apr. 27 weekly expiration, calls have been more active at the 170 strike price. On the put side, the 160 and 165-strike puts have been more active in recent trading. Looking at the May 18 monthly expiration, the 170 and 175-strike calls have been more active, whereas activity has been a little lighter on the put side and spread out from the 165 strike down to the 150 strike.

What’s Coming Up

This is one of the busiest weeks for earnings this quarter. In addition to TWTR and FB, there are quite a few other tech companies reporting this week. Amazon.com, Inc. AMZN, Microsoft Corporation MSFT and Intel Corporation INTC all report after market close on Thursday, Apr. 26. Next week, we’ll see a few other major tech reports with both Apple Inc. AAPL and Alibaba Group Holding Ltd. BABA on the docket.

On top of earnings, both the European Central Bank and Bank of Japan are holding meetings at the end of this week. The Fed will meet the following week on May 1-2. The string of central bank meetings could add to earnings volatility.

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