Twitter (NYSE:TWTR) stock will report its fourth-quarter earnings before the market opens on Thursday, Feb. 10. The market might be expecting to see some fireworks with TWTR stock, given the huge volatility with both Meta Platforms (NASDAQ:FB) and Amazon (NASDAQ:AMZN).
FB stock lost 26.4% of its value on Feb. 2 when it fell from $323 per share to $237.76. As of Feb. 7, it was down to $228.12, giving it a total drop of 29.4% in the last three days.
This was after Meta Platforms announced its earnings for Q4 and showed that ad revenue growth had slowed. Analysts may be concerned that the same thing could occur with Twitter on Thursday when it announces its Q4 earnings.
Indeed, TWTR stock is already down in anticipation of a potentially disappointing quarter. For example, as of Feb. 7, the stock was down to $36.44, down another 1.5% for the day.
In fact, so far this year, TWTR stock has drifted lower, partly in anticipation of a slower growth year. It ended last year at $43.22 per share, giving it a year-to-date (YTD) performance of -20.2%.
What Analysts Fear About Twitter
The market fears that some of the same forces that slowed Facebook’s ad revenue growth and its quarterly outlook could affect Twitter as well. For example, Barron’s magazine pointed out that Facebook said its March quarter revenue growth could be as low as 3% verses 48% a year ago.
Barron’s says that the whole online advertising industry is facing tough issues. This includes reduced spending by advertisers who are having issues related to inflation and supply-chain issues.
In addition, Apple (NASDAQ:AAPL) made privacy option changes that adversely affected Facebook and could hurt other social media companies like Twitter.
As a result, the market fears Twitter’s management could also put out a profit warning just like Meta Platforms did in its earnings release.
The Difference With Amazon’s Ads
On the other hand, Amazon had just the opposite happen to it. Its ad earnings grew by 33% year-over-year and there is every indication that they will keep moving higher.
This is likely because they are search-oriented ad earnings, like those at Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Moreover, this was the first time Amazon reported its ad earnings and their growth.
The net effect, along with its Prime membership price increases helped push AMZN stock higher, not lower like FB stock and TWTR stock.
The problem, as most people know, is that Twitter really does not have search-related ad revenue. Advertisers lump Twitter into the social media category, in terms of their budgets, even if people use Twitter for searches on keywords.
The point is that social media ads are seen as less valuable than search-related online ad spend, at least in the “mindshare” of ad spending merchants. And even if they allocate a portion of their ad spending to Twitter based on search, Alphabet is going to get the vast majority of that spending.
What To Do
I suspect that the concerns with Twitter could be a bit overblown compared to Meta Platforms. And even if there are similar pressures on its ad spend growth, I suspect that the decline in free cash flow (FCF) will be much less than at Facebook.
Therefore, it may take some time for investors to get acclimated to what differences there are at Twitter vs. Facebook and the two companies’ Q4 earnings. Moreover, their growth prospects going forward could be quite different.
For one, Facebook is spending heavily on the “metaverse,” even though so far it has very little to show for this. Twitter is sticking to its knitting and focused on enhancing its search and social media ad spending. It’s plowing through the storm, not looking for another exit ramp.
So look for TWTR stock to move higher if its ad earnings growth rate and outlook come through better than Facebook’s. But, if not, Twitter could crater just like Facebook did.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com runs the Total Yield Value Guide which you can review here.
