Earnings Preview: What Might Be Expected When Twitter Reports Q1

It’s been tough for some of the big tech IPOs over the past several years. Following a spike in Twitter Inc TWTR stock price after its IPO, shares declined to the all-time lows it’s close to today. TWTR isn’t the only tech stock to see its shares lose a lot of value. Fitbit (FIT) and GoPro Inc GPRO, once considered tech darlings, have also seen their shares decline to record lows in the years following their IPOs.

Clearly, the tech sector is a competitive space and social media is no exception with major players Facebook Inc FB and Snap Inc SNAP. While SNAP just started trading publicly, FB and TWTR went public in May 2012 and November 2013, respectively. Since then, the stock performance of the two diverged substantially (figure 1 below). The financial performance of the two has also deviated.

Over the years, growing competition in the industry impacted TWTR’s financial results. In its fourth-quarter letter to shareholders, TWTR management wrote “revenue growth will continue to lag audience growth due to the sales cycle, and could be further impacted by the escalating competition for digital advertising spending and our efforts to re-evaluate our revenue product feature portfolio”. Anthony Noto, the company’s COO, also said they are “focusing our investments on revenue products that strengthen our unique value proposition, especially in live and video”.

That growing competition is expected to impact TWTR’s first-quarter results. The company reports before market open on April 26 with expectations for earnings of $0.02 per share on revenue of $512 million, according to consensus third-party analyst estimates. Overall, analysts are expecting just under a 14% decline in revenue and a large drop from earnings of $0.15 per share in the same quarter a year ago.

Around TWTR’s earnings release, the options market has priced in about a 8.5% potential stock move in either direction, according to the Market Maker Move indicator on the thinkorswim platform.  In short-term options trading at the April 28 expiration, there’s been activity in calls at the 15 and 16 strike prices and puts at the 15.5 strike have been active. TWTR’s stock has been trading in a tight range since the beginning of March and the implied volatility sits at the 29th percentile.

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.

If you haven’t already, check out what might be expected when Boeing Co BA, American Airlines Group Inc AAL, and Southwest Airlines Co LUV report this week.