Shares of Twitter TWTR popped on Thursday to inch closer to their 52-week high as investors continue to assess the social media company’s newly brighten outlook. With that said, let’s take a look at why Twitter stock is currently a strong buy.
Twitter reported GAAP profitability in the first quarter, after doing so for the first time in the fourth quarter of 2017. This alone helps show investors that Twitter is slowly becoming a legitimate money maker and might be shedding its post-hype negativity.
Twitter’s user base pales in comparison to Facebook FB, and is much closer to Snapchat SNAP. But company grew its daily active user base by 10% in Q1, while its monthly active user base popped by 3% to reach 336 million. Twitter’s MAU growth might not seem that significant, adding only 10 million new users over the last year. But investors should understand that every user counts, especially as it grows its advertising revenue.
The company’s AD revenues, which accounted for roughly 86% of Twitter’s total Q1 revenue, climbed 21% from $474 million in the year-ago period to $575 million. Meanwhile, the social media company’s international ad revenue surged 52%, lifted by growth in the Asia-Pacific region. Going forward, investors should expect to see Twitter’s adverting business become even more lucrative as it expands it live video reach.
One metric that helps demonstrate live video’s power and appeal to content producers and advertisers is ad engagements. Twitter saw this key figure skyrocket nearly 70% in the first quarter, while its cost per engagement dropped 28% from the year-ago quarter. Video also made up more than half of Twitter’s total advertising revenues and was the company’s fastest-growing ad segment.
Twitter streamed more than 1,300 live broadcasts in Q1, with roughly 80% reaching a global audience. The company also announced that it signed more than 30 new video deals in the first quarter, which includes live-streaming rights, highlights, as well as VOD partnerships.
The company locked down new deals with Fox Sports FOXA, MLB, MLS, NBCUniversal CMCSA, Viacom VIAB, Disney DIS—which includes a ton of ESPN programming—and many more well-known outlets. This streaming video push should help Twitter expand both its top and bottom lines, especially as people consume more and more content from their mobile devices.
More Fundamentals & Outlook
Twitter’s live video push and its bottom line growth have made its stock look far more reasonably priced. Twitter is now trading at 43.79x earnings, which marks a substantial discount compared to the “Internet – Software” industry’s average P/E of 59.92x. Shares of Twitter also currently sit roughly 10% below their 52-week high, despite the company’s strong first quarter and recent surge. This means now might be a great time to buy Twitter stock before it faces the added burden of having to break into a new range.
With that said, Twitter could easily fly by its 52-week high as momentum mounts, considering that the company is expected to see its earnings and revenues continue to climb. Twitter is expected to see its Q2 revenues pop by nearly 22% to hit $698.93 million, based on our current Zacks Consensus Estimates.
Twitter’s adjusted quarterly earnings are projected to skyrocket over 112% to $0.17 per share. The company’s fiscal 2018 earnings are also projected to soar by 68% to reach $0.74 per share.
Investors should also note that Twitter has received 10 earnings estimate revisions for Q2, with 100% agreement to the upside, all within the last 30 days. Meanwhile, during this same time frame, Twitter earned 13 upward revisions against zero downgrades for its full-year. This means that analysts covering the stock have recently become more positive about the company’s bottom line expansion in 2018.
For years, Twitter has been a fantastic platform to share instant news. But even as it grew into a resource that is currently used by nearly every major company, public entity, and news outlet, Twitter struggled to make money. Now, Twitter finally looks like it might have hit its stride with live video—which commands much more advertising dollars than nearly all other digital mediums.
Twitter is also currently a Zacks Rank #1 (Strong Buy) that rocks an A grade for Value and a B for Momentum in our Style Scores system. Furthermore, on top of its near-term bottom line expansion, Twitter is projected to see its EPS figure expand at an annualized rate of 23.1% over the next three to five years.
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