Twitter Inc (TWTR) will report its first quarter earnings after the closing bell on Tuesday. The pressure is on for management to post solid revenue and earnings growth as well as a return to user growth.
In TWTR’s fourth quarter report, management had to tell investors that its user base didn’t grow at all over the previous quarter, and non-SMS users actually shrunk. While management assured investors on the earnings call that the number of users had returned to Q3 levels in January, it’ll have to provide some hard numbers on Tuesday.
Here’s what to watch for when TWTR reports.
TWTR User Growth and Engagement
Above all else, one of the most important factors for Twitter is its user growth. Management has attempted to shift the narrative from its user base to its total audience strategy, which includes logged-out visitors and internet browsers viewing tweets on other sites like Google. But TWTR’s core users are by far the most valuable to the company and indicate strong potential for long-term revenue growth.
But Twitter doesn’t just need user growth — it needs to see increased engagement levels. A recent survey from Morgan Stanley found the average TWTR user spends just 2.7 minutes using the app per day. Comparatively, Facebook Inc‘s (FB) users spend an average of over half an hour on mobile every day.
To that end, Twitter has looked to make some changes to improve engagement. It rolled out Moments last fall, which highlights some of the best content on the platform.
Additionally, it integrated livestreams from Periscope into users’ timelines. It changed the timeline from reverse chronological order to an algorithmic order like Facebook’s News Feed, and it changed favorites (stars) to likes (hearts). Look for commentary on how any of these changes may have impacted user engagement during the first quarter.
Twitter Revenue and Earnings Expectations
The analyst consensus estimates for revenue and earnings are $607.84 million and $0.10 in non-GAAP earnings per share. Those represent year-over-year increases of 39.4% and 42.9%, respectively. That’s some pretty strong growth compared to most companies the size of Twitter, but it represents a significant slowdown from Q1 2015, when it posted 74% revenue growth.
Twitter has a history of beating expectations when it reports, but the $607.84 million is near the top-end of its initial revenue outlook for Q1 of $595 million to $610 million. Historically, Twitter has exceeded the high-end of its guidance, but in Q4, it merely met its high-end expectations.
Keep in mind, however, that was a quarter with no user growth, and negative user growth in its most valuable market — the United States. If user growth really has returned to Q3 levels, TWTR should report a revenue beat once again.
Bottom Line for Twitter Stock
Beyond the big numbers, Twitter stock investors need to pay attention to how management is actually driving those numbers.
On the revenue side, TWTR recently partnered with Alphabet Inc‘s (GOOG, GOOGL) DoubleClick Bid Manager. Look for commentary on how that partnership has impacted ad sales and pricing, since it allows Twitter to receive its due sales attribution.
Additionally, management has started giving out more details on its active advertiser base, which reached 130,000 in Q4. Look for an update on growth on that front, which is directly tied to its ability to increase ad prices.
With regard to earnings, look for the impact of Twitter’s big round of retention offers last quarter. A lot of the bonuses were paid with stock, so the numbers may be in the GAAP reconciliation statement.
On the user growth front, management has made several changes to the product over the last quarter. Additionally, it has spent more on product advertising. Look for commentary on how any of those changes has had a direct or indirect impact on user growth outside of typical seasonality.
As of this writing, Adam Levy did not hold a position in any of the aforementioned securities.
