Twitter Inc (NYSE:TWTR) stock has staged a nice rally (up about 30% since May), the key being the spark in acquisition activity in the internet space. Just look at Microsoft Corporation’s (NASDAQ:MSFT) $26 billion acquisition for LinkedIn Corp (NYSE:LNKD).
But TWTR stock has a history of disappointment. And we may get this once again tomorrow, with the release of Twitter earnings (the report will be after the market close).
So what is the Street looking for with Twitter earnings? The consensus is for adjusted profits of 10 cents a share and revenues of $607 million, compared to $502 million in the year-ago period.
But in terms of the outlook for the Twitter stock price, the Street is far from upbeat: The average price target is about $18.38, in line with the current market value.
The main concern for the TWTR stock price? Lackluster user growth. During first quarter, the annual increase was a mere 3%. Since then, it looks like little’s been done to improve things.
To get a sense of what Wall Street analysts think, here’s a sampling from Wedbush’s Michael Pachter:
“Management appears complacent about the status quo and unfocused on the lack of user growth. Until Twitter is focused on attracting new users, driving increased use by its existing users, and demonstrating its value proposition to people who don’t use the service, we expect it to grow very slowly.”
Ouch!
Okay then, but this is not to imply that all is wrong with Twitter stock. It is certainly encouraging that the company has been moving more aggressively into sports. This is a category that involves highly engaged people who like to make their opinions known!
So Twitter has struck important deals with Major League Baseball and the National Hockey League to provide live video streaming of out-of-market games (on a weekly basis). There is also a deal to do the same for 10 NFL games on Thursday night.
Bottom Line On Twitter Stock
Now there is something else with TWTR stock that is definitely important — that is, there should be some nice catalysts for the rest of the year. After all, there are various mega events that should help boost engagement, such as the Olympics and the contentious presidential election.
But then again, Twitter faces more intense competition. Facebook Inc (NASDAQ:FB) has been ramping its own broadcasting capabilities, especially with its real-time video streaming. What’s more, Instagram has been a standout, with over twice as many daily active users as Twitter.
Oh, and then there is Snapchat. This fast-growing startup has recently surpassed Twitter’s daily active user count.
Besides, TWTR stock is far from cheap, trading at 28 times future earnings. But FB stock trades at 26 times forward earnings, and is growing at a much faster pace and is cranking out substantial amounts of cash flows. Or consider Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), sporting a multiple of only 18 times earnings.
In other words, it’s probably best for now to just avoid TWTR stock ahead of its earnings.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
