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Shares of Twitter TWTR have climbed over 40% in the last 12 weeks, as the social media company rides a wave of Q4-driven momentum. Now, investors need to see if Twitter’s hot streak is likely to continue as we approach the release of its first quarter earnings report.
Twitter reported GAAP profitability for the first time in the fourth quarter. The company also noted that its daily active user base grew by 12%, which marked Twitter’s fifth consecutive quarter of double-digit growth in that highly important user category.
The social media firm, known for its breaking news power, has also made inroads in the streaming video world. Twitter’s push into this area has helped the company attract some major advertisers, including Goldman Sachs (GS) and AT&T (T), and is expected to be a major revenue driver going forward.
Still, Netflix NFLX and Amazon AMZN dominate the on-demand streaming world, while Facebook FB and Twitch currently control a decent chunk of the live streaming, social channel domain. With that said, Twitter likely faces an uphill battle in its fight to become a big-time live video player.
This means that Twitter’s stock price could suffer if the company underwhelms in the first quarter. Therefore, we need to dive into some of Twitter’s current estimates to see if investors should consider buying TWTR stock ahead of Q1 earnings.
Latest Outlook & Valuation
Our current Zacks Consensus Estimates are calling for Twitter’s revenues to jump by 11.2% to reach $609.87 million. Twitter’s earnings are projected to climb 9.1% to hit 0.12 per share.
Of course, top and bottom line growth estimates are just two of the many things investors will be concerned with when TWTR reports its first quarter financial results. We can also turn to our exclusive non-financial metrics consensus estimate file to help prepare.
The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.
According to these consensus estimates, Twitter is on track to report Q1 data licensing revenue of $84 million, which would mark a sequential decline but a $10 million year over year jump. Meanwhile, its highly important advertising revenue is projected to jump from $474 million in the year-ago period to $529 million.
Twitter is also expected to see its MAUs reach 334 million, up 6 million from the year-ago period and 4 million from Q4.
Heading into Thursday, TWTR was trading with a P/E of 52.9, which marks a substantial discount compared to the “Internet - Software” industry’s average of 62.5. This signals that Twitter investors are likely banking on outsized growth and don’t see the stock as a value play at the moment.
Earnings ESP Whispers
Investors will also want to understand what chance Twitter has to surprise with better-than-expected earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Twitter is currently a Zacks Rank #1 (Strong Buy) and sports an Earnings ESP of 4.0%. This means that the most recent analyst estimates have come in higher than our current consensus, which signals that investors can consider Twitter a stock that looks poised to top earnings estimates.
Twitter’s earnings surprise history and the effect that these surprises have had on TWTR’s share prices are two other important factors to consider ahead of the social media company’s Q1 earnings report.
Twitter, Inc. Price, Consensus and EPS Surprise
Twitter, Inc. Price, Consensus and EPS Surprise | Twitter, Inc. Quote
We can see that Twitter has consistently topped earnings estimates over the last few years. And the company has posted an average earnings surprise of 153% over the trailing four periods. With that said, these beats have not necessarily led to positive momentum immediately following TWTR’s earnings release.
We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Over the course of Twitter’s long streak, the stock has turned negative in two out of the previous six windows.
Twitter is scheduled to report its first quarter financial results before the market opens on Wednesday, April 25.
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