In the lead up to Twitter’s [TWTR] Q4 earnings results, which the company reports on 6 February, investors will be keen to see if the social media company can remedy the revenue miss it delivered just one quarter ago, and deliver a boost to a relatively flat share price.
When revenue came in at $824m last October, on the lower end of Twitter’s guidance, which ranged between $815-$875m, its share price plunged over 20%. Although the share price has been on the road to recovery since, it is yet to reach the highs it saw prior to these disappointing results.
This month, investors will be looking closely to see if these results were a one-off, or whether this will be a long-term problem for Twitter, and the company’s share price performance.
Twitter's revenue from Q3
What happened in Q3?
Platform bugs were the key to Twitter’s miss in Q3. The company was battling with technical issues that affected its legacy Mobile Application Promotion (MAP) product, which in turn impacted its ability to target ads and share data with ad partners, among other issues.
The company lost out on both top and bottom lines, with earnings per share (non-GAAP diluted) coming in at $0.17 versus the $0.20 expected.
Twitter also warned shareholders that these headwinds would be felt for the entirety of the fourth quarter, and “continue to weigh on the overall performance of our advertising business in the near term.&rdquo
What to expect this quarter?
Options traders are betting that Twitter’s share price declines by as much as 9% following fourth-quarter results, according to Forbes. Writing for the publication, Michael Kramer says that from a technical perspective, momentum in Twitter equity is beginning to shift from bullish to bearish.
Earnings are forecast to be weak next week, according to Kramer, and operating expenses are said to have soared in the third quarter after the company ramped up R&D and headcount.
Twitter has guided fourth-quarter revenue to range from $940m to $1.01bn. To achieve this, it can’t have the seasonality issues it experienced in Q3, Kramer says. According to Yahoo Finance, analysts expect Twitter to report revenues of $996.5m and EPS of $0.28.
Analysts' predictions for Twitter's Q4 revenue
What’s the upside?
Despite Twitter’s troubles, the share price is up 5.1% on the year (to 4 February) and 10.4% since it plunged on Q3 results on 24 October 2019.
While analysts are cautious in the lead up to Q4 results, the long-term outlook appears fairly good. Bank of America analyst Justin Post noted in early January that it could be a difficult setup into fourth-quarter earnings, but that the share price will be well-positioned following its report.
Following the launch of Twitter’s promoted trend spotlight, which allows brands to advertise at the top section of its explore tab, Post reiterated the micro-blogging site’s Buy rating and said that it was among his top small-to-mid-market capitalization picks for 2020. The firm also reiterated Twitter’s target price of $39. The analyst is optimistic that the new feature will draw in further advertisers.
Twitter is likely to benefit from the US presidential election this year, Bank of America has also noted. The bank believes election debates and discussions on the platform could boost overall engagement.
|PE ratio (TTM)||16.33|
|Quarterly Revenue Growth (YoY)||8.70%|
Twitter share price vitals, Yahoo Finance, 05 February 2020
For the time being, it seems that Twitter is going to face some headwinds. UBS analyst Eric Sheridan downgraded the company on 17 January, saying continued investments in safety, security and ad technology are likely to cap valuation.
The analyst cut his rating from a Buy to a Neutral, and downgraded his share price target from $37 to $35.
“[Twitter's] platform is set to capitalize on large scale events (Olympics, European football championship & US election) but exiting from its 'buggy' summer we think [Twitter] management also is likely to persist with investments around safety/security and ad tech stack (both of which are needed against long-term management goals)," Sheridan said in a note.
The current consensus among 45 analysts polled by CNN is that the stock is Hold.