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Will earnings continue boosting Twitter’s share price?

Twitter’s share price [TWTR] gained 25.5% in the year to 20 July, sitting at $67.95 at close on that day. After an initial dip that saw Twitter’s share price fall 16.6% in the first two weeks of January, the stock made rapid gains, peaking on 1 March with a close of $77.63 — the highest level Twitter’s share price has closed at since the company went public in 2013.

However, Twitter’s share price fell rapidly from this high and, largely thanks to a single-day crash of 15.2% on 30 April, fell to $50.11 on 13 May to close down 7.5% for the year. Twitter’s share price has since been on a steady period of growth, gaining 31.75% since the May bottom to the 19 July close. Twitter’s share price is currently 78.14% above its level 12 months ago.

25.5%

Twitter's YTD share price gains

  

Will investors continue to like Twitter’s share price after the company’s earnings call, due on 22 July?

 

Looking for big gains

Zacks Equity Research expects Twitter’s sales to clock in at $1.06bn. Analysts are fairly tightly clustered around this level, with the low estimate being $1.04bn and the high estimate $1.08bn. Assuming Twitter’s sales fall somewhere in this range, it will be a marked improvement year over year: Twitter reported sales of $683.44m for the equivalent quarter in 2020, making this year’s consensus estimate a 54.5% increase.

Earnings are likewise set for a big gain year over year. Zacks forecasts a slight profit equating to EPS of $0.07, a considerable improvement on 2020’s equivalent losses of -$1.39 per share. That figure was well below analyst expectations of -$0.02 per share — the reported loss was 6,850% greater than expected.

$1.06billion

Twitter's expected Q2 sales

  

The highest estimate among the Zacks panel forecasts earnings more than double this level, at $0.15 per share, but the low estimate sees Twitter barely covering costs with an estimated EPS of $0.01.

The company’s second-quarter 2020 earnings in particular were a poor set of results. The quarter was the only one since Twitter went public in which it reported negative EPS. Twitter’s share price fell 1.7% on 23 July 2020 following the earnings announcement. Investors will be helping for a considerable improvement on the equivalent quarter last year.

Analysts expect the upcoming report to set the stage for a period of growth.

Zacks forecasts sales to increase to $1.16bn next quarter, with 2021’s sales totalling $4.79bn, a 28.8% increase on 2020’s total. Looking further ahead, 2022 is set to increase again, by 23.8% to $5.39bn. Earnings, meanwhile, are expected to increase next quarter to $0.16 per share, a figure 15.8% below the equivalent for a year previously.

$4.79billion

Twitter's expected 2021 sales - a 28.8% YoY rise

  

Consensus has Twitter’s EPS for the year rising from -$0.87 per share in 2020 to $0.77 per share overall in 2021, with 2022’s earnings expected to increase just short of 37% to $1.06 per share. Should growth exceed these expectations, Twitter’s share price should see gains as a result.

 

Social at home

The Global X Social Media ETF, of which Twitter is a top holding with a 6.30% weighting, [SOCL] has gained 10.4% in 2021 (through 20 July). Its pace of growth has slowed in the year, given the trailing 12 months saw growth of 46.6%. That said, the fund made rapid gains of 26.5% to 16 February, but has been on a downward trend since then. This pattern overall is similar to Twitter’s share price performance in the year to date.

This could be a result of a slowing of the trend towards home-working and living, as opposed to waning attitudes towards social media per se. Twitter also appears in the Emles @Home ETF [LIV], as the fund’s 18th-largest holding as of 17 July with a 3.1% weighting.

The fund, which tracks companies expected to benefit from the shift towards increased at-home activities, gained 11% between its inception on 14 October 2020 and 30 June 2021, underperforming both SOCL and Twitter’s share price, which gained 43.8% and 49.7% respectively over the same period.

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