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Bull of the Day: Twitter (TWTR)

Madeleine Johnson

As one of the most ingrained social media platforms in the public sphere, as well as a favorite method of communication for President Donald Trump, Twitter (TWTR) has been an important networking tool since its launch in 2006.

The app and website has become a preferred way for many people to find out what’s happening in the world, and discover what people are talking about at any moment. It utilizes hashtags, especially trending hashtags, to create a sense of community and connection.

However, it’s no secret that Twitter has faced serious headwinds over the years, in addition to Russians using the platform to disrupt the 2016 election, the rise of buying fake followers, and users deciding to sign off for good.

Its last quarter was impressive, and while one good quarter is not much to bank on, Jack Dorsey’s flagship company seems to be finally figuring out its business.

Twitter Posts First Ever GAAP Profit

Last week, Twitter, a Zacks Rank #1 (Strong Buy) stock, posted incredibly strong fourth quarter results, and its stock skyrocketed as a result.

Most importantly, the company reported, for the first time ever, GAAP profit of $91 million. Adjusted net income of $141 million, or 19 cents per share, which beat the Zacks Consensus of 14 cents per share; this represented a 72.7% year-over-year jump.

Revenues of $732 million grew just 2% from the year ago period and beat the Zacks Consensus as well.

Adjusted monthly average users (MAUs) totaled 330 million, which was flat sequentially but up 4% on a year-over-year basis. This increase was driven by 2% growth in U.S. MAUs and 4% growth in international MAUs.

Daily average users (DAUs) increased 12% year-over-year, marking Twitter’s fifth consecutive quarter of double-digit, year-over-year growth for this metric. In particular, DAUs were helped out by growth in five out of the top 10 global markets.

Fiscal 2018 Guidance

 

Looking ahead, Twitter expects to become GAAP profitable for full year 2018.

Additionally, the company projects adjusted earnings to hit 45 cents this fiscal year, and grow its top line over 7% to $2.58 billion.

Adjusted EBITDA is expected to be in the range of $185 million to $205 million, while EBITDA margin is likely to be in a band of 33 to 34% for the current quarter.

Estimates are on the Rise

Earnings growth estimates have been steadily increasing, and analysts have turned bullish on TWTR.

While earnings are expected to decline 18% for its current quarter, Twitter’s bottom line should grow 25% year-over-year in the next quarter. One analyst has revised their estimate upwards in the last 30 days compared to none lower.

Fiscal 2018 figures are also looking pretty promising, with five estimates moving higher in the past 60 days. The consensus estimate trend has been stable for the past two months as well.

Earnings estimates for 2019 are on the rise as well, jumping from 44 cents per share to 47 cents per share in the last 7 days.

Will the Rally Continue?

Shares of TWTR have risen nearly 30% since the start of the year, and almost 100% in the past one-year period.

Twitter, Inc. Price and Consensus

Twitter, Inc. Price and Consensus | Twitter, Inc. Quote

As I said above, Twitter has struggled in the recent years. CEO Jack Dorsey splits his time between the company and his other venture, digital payments business Square (SQ), while COO Anthony Noto recently departed to become chief executive of online lender of Social Finance.

Then there’s the lack of user growth—it was barely growing two years ago—especially when you compare it to fellow social media company Facebook (FB), or even Snapchat parent Snap (SNAP).

Even though monthly users on Twitter have mostly stalled, the decision to expand to 280-character tweets have likely helped keep its users around. On a call with investors, Dorsey said that “we’re…seeing a lot more engagement. We’re also seeing more retweets, and we’re seeing a lot more mentions. And we’re also seeing people get more followers and return more often.”

There’s a lot of potential for Twitter moving forward. With all of its kinks and complexities, the last quarter demonstrated that the company may have finally found the right combination of business strategy and implementation. It’ll be interesting to see how Twitter can monetize its new found profit and growth.

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