Watch User Engagement When Twitter Inc (TWTR) Stock Reports Earnings

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Twitter Inc (NYSE:TWTR) is either a buyout target worth at least 20 percent more or is trading at roughly fair value in the $13 billion – $16 billion market cap range. Last year, rumors that Salesforce.com, Inc. (NYSE:CRM) or Microsoft Corporation (NASDAQ:MSFT) might buy it sent the stock trading at unsustainable levels.

Watch User Engagement When Twitter Inc (TWTR) Stock Reports Earnings

The market has since removed any takeout premium from its stock price. Good fourth-quarter engagement numbers could therefore have a positive influence on the stock price.

Previous Quarter Highlighted TWTR Stock’s Growth

CEO Jack Dorsey stressed evidence of accelerating growth with its audience. Introducing new products and encouraging higher audience engagement are two goals for Twitter for this year. And last quarter, it focused on live events.

By delivering on a better user experience, TWTR stock has a good chance of reporting higher engagement numbers. This includes DAU (daily active users), MAU (monthly active users) and time spent on the site. If these numbers are up, advertisers will willingly spend more per click and campaign.

Analysts have low expectations for TWTR revenue and expect sales growth of only 4.2% year-over-year. The average revenue estimate is $740.13 million (the range is $713.4 million – $769.8 million. Yet for the full year, analysts expect sales growing 15% but just 9.3% next year.

Also expect strong user engagement from the live events. TWTR launched the live initiative last September. It syndicated the experience to its partners, including Yahoo! Inc. (NASDAQ:YHOO), AOL, SBNation and Sports Illustrated. Its TV partners, which included Apple Inc. (NASDAQ:AAPL), Microsoft and Amazon.com, Inc. (NASDAQ:AMZN), were also channels for Twitter’s platform.

Presidential Election Tweets

Twitter’s 10.4% jump in the last week may already show the benefit of tweet volume increasing during the U.S. elections. Advertisers likely bid higher rates for exposure on the platform in that time.

That could mean TWTR’s revenue beats analyst expectations. Twitter noted that debates will help DAU numbers, but the platform requires constant live content to sustain quarterly active user growth:

“We want to really leverage this nationally and globally recognized content on live to build awareness of underserved so that we do have a dependable place to find live content. So we’re very encouraged by those events, but for them to have an impact over a 90-day period our live strategy has to be more fully rolled out. And we’re on the process of doing that.”

Live events will fuel Twitter’s fourth-quarter revenue growth, although management gave no forecast on what it expects. Last quarter, the company cut its sales force. The restructuring from three channels down to two will disrupt the short-term business results. In the next few quarters, expect improved operating efficiency to add meaningfully to profit margin.

SNAP IPO Casts Shadow Over Twitter

Snapchat’s upcoming IPO, which Fortune Magazine says may be the most expensive tech IPO ever, will cast a shadow on Twitter. Not only will markets ignore the lofty valuations for SNAP, but the company’s cash injection will give SNAP the resources to invest in R&D and staff.

Investors may also ignore the non-voting rights for Snapchat’s shares. As SNAP stock soars, more investors will speculate on it, taking the attention away from Twitter.

Twitter’s earnings report on Feb. 9 should bring no negative surprises. The company cut expenses and turned its focus on live events. By doubling down on its strength of delivering live-tweeting in real time for sports events, user engagement likely improved. That news is good enough to send the stock higher.

As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/twitter-inc-twtr-stock-reports-earnings/.

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