Twitter Earnings Preview Q3-2015

  • I think the culling of jobs that took place recently is good for stock price. Investors are sick of waiting for the company to be in the black despite surging revenues over the past few years.
  • "Moments" should increase engagement and user growth rates going forward. Forward looking commentary on how successful it should be would be encouraging for investors.
  • "140Plus" is a crucial project for Twitter. If it is implemented correctly, it alone could turn the company around.

Twitter (NYSE:TWTR) announces earnings on the 27th of this month and investors are keen to see what the CEO "Jack Dorsey" has to say with respect to the way forward for the company, especially after the recent mass lay-off the company announced last week. Overall, I think this is a good move as the company still hasn't turned a profit since going public. Numbers don't lie and the table below shows the true picture (Income results from its Q2 earnings shown below).


Source :

Ploughing all the profits back into the business is definitely worthwhile if the company is gradually decreasing its operating loss quarter over quarter. With Twitter, it simply has not been happening. Huge revenue spikes look great ($502 million done in Q2 - a 63% increase over Q2-2014) but if the bottom line is not improving, it suggests that the company is  not investing into the business in the best way possible.

Twitter Stock Has Substantial Upside

What sticks out to me is the huge research and development budget which came in at almost $200 million last quarter (40% of revenues). The research side of this budget will most likely be the area that Dorsey will be cutting as he wants to focus more on bringing products to market. Dorsey's comments when Twitter earnings are announced are going to be huge in relation to share price movement. What tanked the stock in Q2 what not so much  the poor user growth number but management stating that user growth would be muted over the next 12 months. Let's go through this article and discuss what analysts are predicting for Q3 and why I still think this stock still has substantial upside from its present $30.91 share price.

Firstly, analysts on average are expecting Twitter to come out with revenues of $559 million and a non-GAAP EPS of $0.05 for the third quarter. There is no question that Twitter's revenue has been one of the fastest growing in the tech space. The company also beat analysts EPS expectations for Q2 reporting $0.07 per share compared to the $0.04 predicted. Based on previous results, Twitter will probably beat expectations but one would feel that management has to change its "muted" stance on user growth for the share price to rally substantially.

Twitter's Moment?

"Moments" seems to be definitely the company's top product priority at the moment and this product definitely has the potential to increase engagement on the platform in a meaningful way. The product is a button on the company's social media app and by pressing it users can follow live events (debates, sporting events, etc.) through pictures and videos.

I just think this is Twitter's USP (unique selling point) over other social media networks in that its a true real-time network. The company's aim here is to attract light users back onto the platform which should increase user growth over time. "Moments" was launched at the start of this month so it will be interesting to hear what management has to say about user growth in October and engagement levels. Any positivity here when earnings are announced would definitely get shareholders interested as it is definitely a program that could be scaled meaningfully.

Twitter Needs To Scale Internationally

Speaking of scale, there is no doubt that this company can scale up in a significant way internationally. US revenues still outweigh international sales even though Twitter only has 60 million users (out of 300 million+ in total) in the US. It will be interesting to see, when earnings are announced, whether the international roll-out that the company did for its self-service advertising platform has helped it in gaining traction among advertisers or not. Twitter has over 100,000 advertisers already on its books. Again its forward looking commentary that investors will be looking for here as this initiative only happened a few months ago. What has been the uptake like among international advertisers? Again positive comments here could move the stock nicely on the 27th.

Aside from user growth at twitter, engagement or time spent on the platform has to be second in terms of importance. Twitter is working hard on getting its users to be more engaged and "140Plus" has the potential to definitely do that. On the surface it makes sense, more information, more coverage, more interaction and ultimately, hopefully more engagement. Nevertheless Twitter was built on its 140 character limit. Would existing subscribers vacate the platform if it turned into something more like a Facebook (NASDAQ:FB)? That remains to be seen but this project is crucial for Twitter and really has to be implemented in the right way to ensure it appeals to the masses. Again investors will be listening to how this project will increase the number of users and engagement plus also keep existing micro bloggers happy.

Summing Up

To sum up, Twitter has definitely been busy since it released its second quarter earnings and revenues could easily surpass $570 million for Q3 if revenue growth rates continue to be elevated. However Dorsey has to change his stance on user growth. With all these projects being launched or in the pipeline, we need to hear positive forward looking commentary. This would definitely move the share price considering the stock is still down (despite its recent strong rally) 13%+ to date.

Jack Foley Jack Foley   on Amigobulls :
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  • I am not an investment advisor, and my opinion should not be treated as investment advice.
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  • I do not have any business relationship with the companies mentioned in this post.
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