If the analysts are accurate with their revenue and earnings estimates for Twitter’s (NYSE:TWTR) third-quarter report, Oct. 25 could be a perfect day for Twitter stock.
Of course, that’s a big if.
On the top line, analysts are forecasting $702 million in revenue, 19% higher year over year. On the bottom line, they see 14 cents a share — 40% higher than a year earlier.
Except for Q2 2018, TWTR has pulled off positive earnings surprises in three out of the last four quarters with an average beat of 37%.
A 37% beat in the third quarter would mean $144 million in earnings or 19 cents a share. That’s not half bad; however, we are talking about a non-GAAP beat.
On a GAAP basis, Twitter lost $21 million in Q3 2017, which was 79% less than in Q3 2016. In the latest quarter (Q2 2018), Twitter made $100 million on a GAAP basis, which was its third consecutive quarter to do so. This has put Twitter’s quest for profitability on solid ground.
Twitter Earnings: Things to Look For
The first thing investors will want to see is how severely the company’s cleanup of bots, fake users, etc., has affected monthly active users in the U.S.
In the second quarter, U.S. MAUs were 68 million, flat over Q2 2017, and one million less than Q1 2018. While it’s expected that MAUs could see a contraction from 68 million in both the third- and fourth-quarters, it’s important to know how that affects average revenue per user.
Last quarter, despite no growth in U.S. MAUs year-over-year, U.S. ARPU increased by 10% to $5.40 from $4.91 a year earlier. On the international front, ARPU increased by 39% to $1.29 from 93 cents a year earlier.
The consensus is that both the U.S. and International ARPU will continue to grow in Q3 2018, but it’s something to watch out for.
A second thing to look out for in Twitter’s earnings report is its video streaming business. Advertising currently accounts for 85% of TWTR’s revenue with video ads delivering the lion’s share of the growth.
With new live content deals with the likes of Major League Baseball, its video ad revenue should see healthy growth in the third quarter. In Q2 2018, Twitter’s ad revenues grew by 23% YoY to $601 million with ad engagements up 81% in the same period.
The Zacks consensus estimate in Q3 2018 for advertising revenue is $592 million, 18% higher than in Q3 2017. I’d look to see if it can grow advertising by 20% or more in the quarter. Anything less than 15% growth should be viewed as a negative.
The third and final thing to watch for has less to do with financial metrics and more to do about language.
What does TWTR have to say about its efforts to clean up its user base and improve user engagement? It will be a big positive for TWTR stock if the company is very confident about the actions it’s taken.
The Bottom Line on Twitter Stock
Back in August, I discussed the pros and cons of Mark Cuban selling his Twitter stock. People sell for all kinds of reasons. Ultimately, Cuban sold because he no longer was confident holding stocks in a very volatile market.
A personal choice.
I’ve always believed that TWTR stock is worth owning as long as it’s profitable, which it is. Below $30, Twitter is a bargain. I said it in August, and I’m saying it now.
Unless Twitter earnings crap the bed Thursday, I’d be a buyer on the news.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
