The Sell-Side Previews Twitter's Q2: Will The Stock's 2018 Rally Continue?

Twitter Inc TWTR is one of the best-performing stocks year-to-date, adding over 75 percent.

The social media platform is scheduled to release second-quarter results before the open Friday, July 27. Analysts, on average, expect the company to report earnings of 17 cents per share on revenue of $696.23 million.

Will the report trigger further gains for the stock? Here's the Street's take.

The Analysts

• JPMorgan analyst Doug Anmuth reiterated an Overweight rating on Twitter with a $50 price target.
• Wedbush analyst Michael Pachter maintained a Neutral rating and $24 price target.

JPMorgan: Twitter A Top Stock Idea

Twitter's platform has strengthened thanks to product improvements including increased video content, bookmarks and information quality efforts, and the more compelling returns it generates for advertisers, JPMorgan's Anmuth said in a Wednesday note.

The analyst said he's positive on the stock heading into the Q2 results and expects revenue and EBITDA to come in 3 and 5 percent higher, respectively, above the consensus.

JPMorgan is modeling for the following in Twitter's Q2:

• The seventh straight quarter of daily average user growth; Anmuth forecast 13-percent growth.
• Modest monthly average user growth of 2 million.
• Acceleration in ad revenue growth thanks to strength in large advertisers; the firm models 26-percent, forex-neutral year-over-year growth.
• Strong EBITDA margins.
• Tougher back-half comps as the company laps early performance improvement from the second half of 2017.
• Easing of TellApart headwinds in in the second half.

Twitter remains one of JPMorgan's top ideas, along with Facebook, Inc. FB and Amazon.com, Inc. AMZN, Anmuth said.

See also: Macquarie Downgrades Twitter, Says Valuation 'Will Likely Limit Upside'

Wedbush: Q2 Results To Beat Consensus

Wedbush's Pachter expects above-consensus results,at the high-end of Twitter's guidance. The analyst forecast revenue of $716 million and non-GAAP EPS of 18 cents.

Pachter sees easy comparisons for Q2 after Twitter de-emphasized some legacy businesses. Twitter is gaining traction with its new ad products such as video website cards and video app cards, as well as high-single digit DAU growth that was lifted in part from the recently concluded FIFA World Cup, the analyst said.

Although Wedbush is above consensus on 2018 results, the firm said embedded variability in the revenue guidance, the largely misunderstood impact on user figures from the European Union's General Data Protection Regulation and recent security efforts make it difficult to forecast second-half results.

"Greater visibility in the form of Q3 guidance and a tighter range of expectations for fiscal 2018 may be received positively by investors [and] potentially offset by negative commentary on user growth," Pachter said.

Notwithstanding Wedbush's Neutral rating, Pachter said Twitter has the potential to reinvigorate user and revenue growth.

eMarketer: Twitter Has Regained Traction, But Still Has Long Way To Go

Twitter's share of total worldwide digital ad spending is likely to be at 0.8 percent in 2018, with worldwide ad revenue likely to total $2.22 billion, eMarketer's principal analyst Debra Aho Williamson said. About 92.5 percent of Twitter's worldwide ad revenue, or $2.05 billion, is likely to come from mobile, she said. 

The company's share of worldwide display ad revenue shoul land at 1.6 percent, Aho Williamson said.

Even as Twitter's worldwide user base is likely to grow 4 percent to 264 million in 2018, Aho Williamson said she expects a slight drop in Twitter's share of worldwide social network users to 10 percent.

"Twitter has regained some of the traction it lost in ad revenue and usage last year, but it still has a ways to go to get back firmly on solid ground."

eMarketer sees video as a bright spot for the company as it adds new programming. Despite early skepticism, Aho Williamson said brand advertisers have shown interest in using Twitter video, especially "the ability to sponsor specific shows in a brand-safe environment," she said.

"If Twitter can maximize its positioning as the place to go for the news and information you need now, then it will be successful."