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Why Twitter (TWTR) Stock Looks Like a Buy Ahead of Q4 Earnings Thursday

Benjamin Rains

Twitter TWTR shares jumped over 2% Monday, along with Apple AAPL, Microsoft MSFT, and other tech standouts. Despite its recent climb, shares of Twitter rest well below their 52-week high. So let's see why Twitter looks like a buy heading into the company’s fourth-quarter earnings release Thursday.

Quick Overview

Twitter, like Facebook FB, has dealt with backlash over the company’s role in the spread of misinformation and “fake news.” CEO Jack Dorsey and the company have cleaned up Twitter and tried to rid the social media platform of fake user accounts and “prioritize the health of the platform.” This did hurt the company’s user metrics last quarter, with its monthly active user totals down 4 million year-over-year and 9 million quarter-over-quarter.

Despite some of the setbacks, Twitter posted its fourth straight quarter of GAAP profitability in Q3. Meanwhile, Twitter’s total ad engagements surged 50% and cost per engagement sunk 14%. These two metrics could signal that TWTR is headed in the right direction since advertising accounted for 86% of revenue in Q3.

Going forward, Twitter is likely to remain attractive to advertisers because the social media platform has become a place where millions of people consume information, from breaking news to entrainment. Plus, as non-ad supported platforms like Amazon Prime AMZN and Netflix NFLX grow, marketers will need to reach consumers somewhere. Twitter has also actively expanded its own live streaming video offerings through deals with dozens of media outlets such as ESPN DIS.

With all that said, owning Twitter stock has been no easy ride since the firm went public in 2013. Shares of Twitter have, however, bounced back over the last few years and are up 36% in the past 12 months. Twitter stock rested at roughly $34 a share Monday, which marks a 29% downturn from its 52-week high and might set up a solid buying opportunity for those high on the social media firm.

 

Q4 Outlook

Twitter’s Q4 revenues are projected to jump by 19.14% to reach $871.59 million, based on our current Zacks Consensus Estimate. This would mark a slowdown from Q3’s 29% top-line expansion but crush the year-ago period’s 2% revenue growth. For the full year, Twitter’s revenues are projected to jump roughly 25% to reach $3.01 billion. 

At the bottom end of the income statement, Twitter’s adjusted fourth-quarter earnings are projected to surge 31.6% to reach $0.25 per share. On top of that, the company’s full-year earnings are projected to skyrocket nearly 82%, driven in part by the third quarter’s 110% bottom-line climb.

Details & Users

Moving on, let’s take a look at what investors should expect from some of Twitter’s vital company metrics, with the help of our NFM estimates. The company’s total quarterly advertising revenue is expected to pop just over 18% to reach $760.34 million. TWTR’s growing data licensing business is projected to surge roughly 24% and hit $107.87 million.

Twitter’s worldwide MAU total is expected to come in at 319.05 million in Q4, which would mark a decline of 11 million users or 3.3% from the fourth-quarter of 2017. Investors should also note that our NFM estimate would represent a 7 million sequential decline as the company’s fake user cleanup rolls on.

Bottom Line

Twitter is a Zacks Rank #1 (Strong Buy) at the moment based on its recent earnings estimate revision trends that also sports a “B” grade for Growth in our Style Scores system. The company is scheduled to release its fourth quarter and fiscal year 2018 financial results before the opening bell on Thursday, February 7.

So, make sure to come back to Zacks for a complete breakdown of the firm’s actual Q4 results.

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