Twitter share price struggles ahead of expected slowdown in Q4 earnings

Social media giant Twitter [TWTR] is expected to report a 21.84% leap in year-over-year revenues and a 13.16% drop in earnings when it announces its fourth-quarter figures on 10 February.

Analysts polled by at Zacks Investment Research forecast that the company will report revenues of $1.57bn and earnings of $0.33 per share. This is in line with Twitter’s own estimates, which expect revenues to come in at between $1.5bn and $1.6bn. The anticipated Q4 results would mark a slowdown on the previous three months, when revenues rose 37%.

Twitter came up against difficulties in the December quarter, including changes to Apple’s iOS privacy features. App publishers now need explicit permission to collect and share user data, which has hurt the targeted advertising and pricing that is so crucial to Twitter and other social media platforms.

In its letter to shareholders after the previous quarter’s announcement, the company said it was too early to assess the long-term impact of Apple’s changes, but the “Q3 revenue impact has been lower than expected” and the effect on Q4 revenues will be modest.

Ned Segal, Twitter’s CFO, said that added resilience came from “product innovation, strong sales execution and a broad increase in advertiser demand” — though investors will be anxious to find out in more detail this week.

Ads upswing

Zacks analysts said Q4 advertising revenues are likely to have remained steady, “driven by an upswing in advertiser sentiment for digital ads, following Covid-induced sluggishness”. They anticipate an improvement in demand for Twitter’s sales and marketing solutions, “fuelled by the resumption of more events and product launches”.

Twitter also rolled out its premium subscription option Super Follows in September, which allows users to subscribe to accounts they find engaging for a monthly subscription fee in exchange for exclusive content.

Twitter share price woes

Despite the innovations over the past 12 months, the Twitter share price has plunged 36.6% over this period to close at $35.98 on 8 February.

The company has been hit by a number of hurdles in the past year, including fierce competition from the likes of TikTok and YouTube, criticism over the failure to report offensive content, and the departure of chief executive Jack Dorsey in November.

Other factors that could be weighing on the Twitter share price include the potential impact of iOS changes and the general market shift from growth to value stocks in response to higher inflation. Social media peers such as Facebook owner Meta [FB] and Snap [SNAP] have seen a similar trend, with shares in the two companies dropping 13.5% and 40.1%, respectively, over the past year.

Q3 narrowly missed forecasts

According to CNBC, in its third quarter Twitter reported revenues of $1.284bn, compared with forecasts of $1.285bn. Earnings per share came in at $0.18, beating expectations of $0.15.

Its monetisable daily active users (DAUs) came in at 211 million, narrowly missing forecasts but up 13% from the year-ago quarter.

Q3 profits were slashed by a one-time litigation charge of $766m related to the company allegedly misleading investors about user growth. As a result, it posted a net loss of $537m, compared with a $29m profit in Q3 2020.

The Twitter share price fell 11% after the results, but Dorsey remained optimistic about the potential of new features. “We’re improving personalisation, facilitating conversation, delivering relevant news and finding new ways to help people get paid on Twitter,” he said.

Analysts’ expectations are mixed

According to CNN, analysts expect Twitter to post earnings of $0.33 per share and revenues of $1.6bn.

Zacks forecasts its monetised user base to increase in the fourth quarter, helped by new features and a renewed focus on tackling abuse issues. Wall Street forecasts Twitter will have added 6.4 million users in the last three months of 2021 to end the year with 217.4 million DAUs, according to City Index.

Twitter also introduced a new tipping feature, which allows hosts to charge admission to their live audio chat room in its Spaces offering. This is likely to have attracted more content creators, Zacks said.

Looking ahead, analysts are still unsure. According to 39 analysts polled by MarketScreener, Twitter has a consensus ‘hold’ rating and an average target price of $54.86.

ARK Invest is also uncertain, with Cathie Wood snapping up Twitter shares after Dorsey’s departure, said that Twitter is set to benefit from innovation around NFTs and a move away from “tween, teens and celebrities to more knowledge and ideas exchanging”. However, ARK has been consistently selling Twitter stocks since late December. On 8 February Wood’s firm sold $142m worth of Twitter stocks before earnings following Meta’s disappointing Q4 update.