Why Twitter (TWTR) Is Exceptionally Volatile Today

Twitter NYSE released their Q4 earnings 2021 today before market open and announced a new $4 billion buyback plan. Right after the earnings announcement, the stock jumped up to the pre-market high of $41.54 (+10%) and hit major resistance levels. Finally, 5 minutes before the start of the regular trading hours, the price temporarily hit the pre-market low of $36.21 (-5.6% vs. the previous day's close).

The estimates were a total revenue of $1.58 billion with an EPS consensus of $0.35 for Q4/2021. Twitter missed both estimations slightly and announced revenues of 1.567 billion and an EPS of $0.33.

It is not a surprise that the EPS for Q4 is again the strongest of the year since Twitter Q4 earnings were already the strongest in 2020 (0.38), 2018 (0.31), 2017 (0.19), 2016 (0.16) and 2015 (0.16).

Previously competitors in the ad revenue space announced mixed results.

Alphabet Inc. and Meta Platforms

Alphabet Inc. GOOG released their Q4/2021 earnings on February 1, 2022, after market close with an 11.68% earnings surprise (EPS $30.69) and revenues 4.43% above expectations at $75.325 billion. Alphabet also made a strategic decision to plan for a 20:1 stock split, which will make the stock more attractive to investors who so far shied away from buying shares for $3,000. A stock split also often initiates a strong price momentum to the upside. After the earnings announcements, the stock gapped up to a new all-time high at $3,042 but immediately sold off sharply and is now trading around $2,800 again.

Meta Platforms FB announced a slightly shrinking user base for the first time ever during earnings announcements on Thursday, February 2, 2022. The shrinking user base was so unexpected that many investors began selling their shares immediately during after-hours trading. As a result, the price per share dropped by more than -20%, and Meta Platforms lost over $230 million of their market cap in just one trading day. 

Twitter Q4 Earnings Results

To attract more content creators, Twitter introduced a new so-called tipping feature at the end of Q3/2021. They also rolled out the Ticked Spaces feature that helps users earn money on Twitter Spaces from exclusive live audio experiences.

Cathie Wood's Ark Invest sold $142M in Twitter stock ahead Of Q4 earnings. About 4 million shares changed hands on Monday, February 7, 2022.

Now, with the 4th quarter earnings on the table, it's evident that Twitter's EPS decreased vs. the previous year's Q4 EPS results and also remained below estimates. However, the stock was already under pressure, and market participants obviously expected a more significant earnings miss.

Since Twitter's IPO in November 2013, the stock had been trading in a relatively tight trading range between the all-time low of $13.73 from May 2016 and the all-time high of $80.75 from February 2021. Most of the time, the stock was trading between $30 and $60.

With the latest earnings announcement, it's unlikely that Twitter will move out of the trading range anytime soon. Alphabet still dominates the advertising revenue market, and Twitter, similar to Meta Platforms, has challenging times to grow in that segment.

The important role of advertising revenue becomes clear by looking at the ratio of total revenue and advertising revenue of Twitter. The Q4/2021 total revenue increased 22% year over year and came in at $1.567 billion. The advertising revenue totaled $1.41 billion, which means that 90% of revenue comes from advertisement income. Twitter needs to grow the userbase further to attract more buyers long term.

Alexander Voigt is the Chief Executive Officer and founder of daytradingz.com. He does not hold any positions in the mentioned stocks.