Twitter (TWTR) Down 7.9% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Twitter, Inc. TWTR. Shares have lost about 7.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is the stock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Twitter Q4 Loss Narrower than Expected, Revenues Miss

Twitter's fourth-quarter 2016 adjusted loss per share of $0.03 was narrower than the Zacks Consensus Estimate of a loss of $0.11  per share. However, revenues of $717.2 million missed the Zacks Consensus Estimate of $737.7 million.

On a year-over-year basis, revenues were up a mere 1%. This is the company’s lowest gain since it went public. Revenue growth has been decelerating over the last several quarters.

Moreover, advertising revenues were down in the quarter to $638 million from $641 million reported in the prior-year quarter. 

Twitter’s user growth wasn’t again jaw dropping. Monthly average users (MAUs) increased from 317 million to 319 million this quarter, up 0.6% sequentially. Year over year, MAUs increased 4%. Mobile MAUs were 83% of total MAUs. Average DAUs were up11% year over year.

Quarterly Numbers in Details

The company posted non-GAAP earnings per share of $0.16 per share, flat year over year.

Coming to ad metrics, there was a 151% year-over-year surge in ad engagements but cost per ad engagement was down 60%, given the shift to auto play video, which has lower cost per view compared to click to play.

Mobile advertising revenues contributed 89% to total advertising revenue in the quarter. Data licensing and other revenues increased 14% to $79 million.

Twitter earned nearly 38.6% of its revenues from international markets. International revenues rose 12% year over year to $277 million in the reported quarter. U.S. revenues decreased 5% year over year to $440 million.

The company reported 12% increase in adjusted EBITDA to $215 million. Adjusted EBITDA margin was 30%, up from 27% in the year-ago quarter.

Twitter reported an operating loss of $143.6 million, which compared unfavourably with a loss of $67.2 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

At the end of Dec 31, 2016, cash and cash equivalents (short-term investments) were $3.77 billion compared with $3.49 billion at the end of Dec 31, 2015. For the year, cash flow from operations was $763.1 million and adjusted free cash flow was $444.1 million.

Outlook

For 2017, stock-based compensation is expected to decrease in a range of 15% to 20% year over year while capex will be in a band of $300 and $400 million. Expenses are expected to be unchanged to decrease 5% year over year.

For the current quarter, adjusted EBITDA is expected to be in a range of $75 million to $95 million while EBITDA margin is expected to be in a band of 17% to 17.5%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 106.25% due to these changes.

Twitter, Inc. Price and Consensus

 

Twitter, Inc. Price and Consensus | Twitter, Inc. Quote

VGM Scores

At this time, Twitter's stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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