Twitter Inc (NYSE:TWTR) Q3 earnings is more about its turnaround than about an earnings beat or miss.
Jack Dorsey led Twitter Inc (NYSE:TWTR) has found itself in the middle of the Russia political ads scandal, which has also put the stock under pressure ahead of the company's Q3 earnings. The online news and social networking company is scheduled to report its third-quarter earnings tomorrow, October 26, before the market opens. Shares of the San Francisco, California based company have not yet recovered from the sell-off after the Q2 earnings in July end. Twitter stock is still down by more than 12%. The latest Russian political ads episode has not helped the stock's recovery. The major question before earnings is, whether the turnaround in Twitter is on track and in sight, but not about an earnings beat or miss. TWTR stock is on a continuous downtrend over the past week or so, then, should you buy or sell Twitter stock ahead of Q3 earnings tomorrow?
Wall Street Estimates For Twitter's Q3 2017 Earnings Release.
As has been the recent norm, Wall Street expectations are rather subdued. The consensus expectations are for the Jack Dorsey led company to report revenue of $586.73 million, representing a near 4.7% drop Year-over-Year (YoY). Analysts' expectations indicate the possibility of what could be the first instance of a YoY decline in top line numbers for the social media platform. On the earnings front, analysts expect Twitter to report a non-GAAP Earnings Per Share (EPS) of 7 cents, compared to last year same quarter EPS of 9 cents, marking a 22% decline in earnings. Continuing its recent approach, the management has only provided guidance for Adjusted EBITDA, Adjusted EBITDA margin and stock-based compensation. Twitter expects its Adjusted EBITDA to be in the range of $130 million and $150 million with the Adjusted EBITDA margin between 25% and 26%. This is, in fact, much lower than the Adjusted EBITDA of $181 million last year same quarter.
What Factors Could Matter Most In Earnings Tomorrow?
Twitter has beaten the consensus EPS estimate for the last eight quarters in a row, and it's possible that the company could potentially do so again. However, the Jack Dorsey led company has only beaten revenue estimates only 4 times in the last 8 quarters. The focus would be on revenue growth as revenues have been on a continuous decline YoY over the last two quarters. What's more, Twitter also saw its advertising revenues decline 8% YoY in the second quarter which really doesn't bode well for the company. The company's US advertising revenue also fell drastically by 14% YoY last quarter. With a recent eMarketer research suggesting that smaller rival and parent of Snapchat, Snap Inc (NYSE:SNAP), is all set to go past Twitter in US ad revenues next year, the chances of turnaround don't look great. The overall revenue growth and advertising revenue growth could have a great impact on TWTR stock's fortunes tomorrow.
Twitter is trying a lot of measures to reinvent itself and return to strong user growth. User growth is crucial to any social media platform. This is where Twitter has run into big trouble in recent times with stagnating user growth. Though Twitter reported a 5% monthly user growth YoY but sequentially it was flat. Twitter also doesn't disclose the absolute daily active users metric but only the YoY growth figures. With Facebook's (NASDAQ:FB) Instagram and Snap Inc's Snapchat making life more difficult for the microblogging platform, user growth could definitely come handy to attract more advertisers which in turn would boost revenue growth. The commentary on the impact of new measures like 280 character limit, video content will also be closely watched by investors and analysts alike.
Buy Or Sell Twitter stock ahead of earnings?
The recent downtrend in Twitter stock doesn't inspire much confidence to be bullish on Twitter stock ahead of earnings. Further, the TWTR stock technical chart suggests the stock could be under more downward pressure. In the last trading session, the stock made a bearish crossover closing below its crucial 50-day simple moving average (SMA). And, previously on Monday too, Twitter stock technical chart suggested some major bearish signals. The stock witnessed a bearish Moving Average Convergence Divergence (MACD) crossover and closed below its 100-day SMA in a bearish move. Now, TWTR stock has its next support level at its 200-day just a few cents below its last close, a breach of which could send the stock on a downward spiral. Given, the technical set up, one should clearly avoid Twitter stock ahead of earnings. Only a big positive trigger like strong user or revenue growth could change the fortunes of the stock.
Investors with existing positions in Twitter stock could be better off to sell their stakes ahead of earnings as any major disappointment on the key metrics could lead to a sharp price movement downwards as seen in the last quarter earnings in spite of beat on both top and bottom line. As is evident from last quarter earnings, whether Jack Dorsey led Twitter beats or misses estimates is more or less immaterial. Twitter has promise, but it'll have to prove this in hard numbers. Until then, conservative investors would be better off avoid TWTR stock.
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