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Is Twitter, Inc. (TWTR) Stock Ready for a Big Comeback?

Chris Lau
Updated

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Investors will watch Twitter, Inc. (NYSE:TWTR) very closely when the micro-blogging site reports quarterly results on Thursday, July 27. Since April, TWTR stock has rallied nearly 40%, pricing in good performance metrics ahead of time.

Is Twitter, Inc. (TWTR) Stock Ready for a Big Comeback?
Is Twitter, Inc. (TWTR) Stock Ready for a Big Comeback?

Source: Shutterstock

However, this could prove negative for shareholders: any disappointment, especially with user engagement numbers, will send Twitter stock lower.

In its last quarter, TWTR reported earnings of $0.10 a share on revenue of $548 million. The market liked its product developments. For example, Twitter added Timeline to increase the number of users coming back to the app. Adding premium content, such as sports, resulted in unique viewers jumping by 30% sequentially to 45 million. Another boost in content could give the viewer count a lift in the upcoming quarter.

What to Expect From TWTR Earnings

Facebook Inc’s (NASDAQ:FB) upcoming quarterly earnings report will surely overshadow that of Twitter’s. Conversely, Snap Inc (NYSE:SNAP) may report another disastrous quarter, albeit its losses may be smaller since the company will not pay so much in stock options this quarter. The performance of these two companies puts TWTR stock somewhere in the middle.

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Twitter needs to continue innovating its product so that it encourages higher user engagement. Last quarter, the live content strategy complemented with users having more conversations, which drove more activity on the site. This encouraged higher advertising on Twitter’s site.

Advertiser ROI

The move to give more transparency for advertisers is translating to better advertiser activity on the site. Management is aware of the importance of ROI for its customers. So, giving advertisers the ROI analysis is helping drive repeat business. Customers are buying more CPM and know what they are paying for. This lets TWTR charge more for ads depending on its effectiveness.

Near-term, Twitter expects a slight slowdown in advertising revenue. Its TellApart product received fewer investments. It will have a negative impact on quarterly results as it discontinued its investment in the older products.

Investors will study over the number and size of the deals signed in the quarter. With ROI getting better for advertisers, the chances are good that Twitter will report a better-than-expected backlog of deals this quarter. Management’s long-term goal is to make over $2 billion in revenue.

Dual Focus Not an Issue

CEO Jack Dorsey’s dual role as CEO at both Twitter and Square Inc (NYSE:SQ) is not a concern for shareholders of either company. Square’s stock is trading at yearly highs and TWTR stock could re-visit 52-week highs after the earnings report. Yet TWTR stock does not have believers. The last analyst rating on the stock is a “hold,” from Standpoint Research. Wedbush and Canaccord Genuity both have a $14 price target on the stock.

User Account Cleanup

Just as Facebook is cleaning up accounts held by terrorists, bullies and bots, Twitter is also removing such account types. Fortunately, only a small percentage of accounts are abusive. Creating a safer, more pleasant environment will not have a negative impact on the business.

Cost Cuts

TWTR guided expenses as flat or falling by 5% for the full-year. The upcoming second quarter may experience higher expenses, which depends on the timing of its investments. Marketing, headcount increases and operating costs may happen to fall in Q2.

Bottom Line on TWTR Stock

Twitter does not have favorable valuations for value investors ahead of the earnings report. The market is pricing in a breakdown in Snapchat’s business, which may indirectly benefit Twitter’s user activity. Facebook is still a competitive threat, albeit at a small degree. With that in mind, investors may want to wait until after the quarterly report before deciding what to do next with TWTR stock.

As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.

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