Social media juggernaut Twitter (TWTR) will join the earnings parade next week, and Twitter stock holders will be closely scrutinizing the company’s fourth-quarter financial report since going public. So far, TWTR has topped the consensus estimate twice and missed expectations once since going public late last year, and expectations are geared for another beat this time around.
Digging into the numbers, Twitter earnings are expected to come in at a penny per share on revenue of $351 million. Monthly active user growth of 17 million monthly is also expected. Outside the numbers, analysts also will be looking for any news on any of Twitter’s advertising initiatives, like direct response ads, video or media ads, mobile ads and international ads.
Sentiment has been trending bullish for Twitter stock during the past three months, with brokerage firms upwardly revising their earnings outlook for the company. What’s more, EarningsWhisper.com reports that the third-quarter whisper number for TWTR earnings arrives at 3 cents per share, triple the consensus estimate.
From a longer-term perspective, the brokerage community is largely positive when it comes to Twitter’s prospects. Data from Thomson/First Call reveals 18 “buy” ratings, compared to 14 “holds” and just three “sells.” That said, there is room for improvement, with the 12-month consensus price target of $58 pricing in a premium of only about 16% from TWTR’s close yesterday.
Short sellers, meanwhile, grew increasingly bold during the most recent reporting period, increasing their positions by 5% to 25.8 million shares. As a result, some 5% of Twitter stock’s float, or shares available for public trading, is sold short. While this is not a “wealth” of short interest, it could be enough to provide a minor boost should a positive earnings report spook these bears into buying back their positions.
Returning to the short-term outlook for Twitter stock, options traders have adopted a bullish stance on the shares. Specifically, the October/November put/call open interest ratio for TWTR arrives at a positively slanted 0.7, with calls (bets that Twitter stock will rally) outnumbering puts (bets that TWTR will fall). Zeroing in on weekly Oct. 31 options — i.e., options that expire the week of Twitter earnings — this ratio rises to a more bullish reading of 0.65.
Click to Enlarge Overall, weekly October options are pricing in a nearly 14% move for TWTR following next week’s quarterly report. This places the upper bound near $56.34, while the lower bound lies at $42.66.
A downside move would breech several layers of support, including the stock’s 50- and 200-day moving averages. An upside move, meanwhile, would place TWTR at its highest level since February.
Options Trade on Twitter Stock
For those traders wanting to jump on the bullish bandwagon heading into the company’s quarterly report, a Nov $50/$55 bull call spread has a lot of potential.
This spread was last offered at $1.83, or $183 per pair of contracts. Breakeven lies at $51.83, while a maximum profit of $3.17, or $317 per pair of contracts, is possible if Twitter stock closes at or above $55 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
