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Will Twitter (TWTR) Stock Continue Its 2019 Success After Q3 Earnings?

Christopher Vargas

Twitter TWTR is set to report its third quarter results on Thursday, October 24 before the opening bell. Twitter has had a solid year, up 35.2% but its shares have fallen roughly 10% over the last four weeks.

Twitter stock is currently trading around 16% below its 52-week high of $45.86 per share. The social media company has been able to turn things around this year with solid financials that included better-than-projected results in the first two quarters. Let’s take a look at Twitter’s climb in 2019 and where the company might be headed in the closing months of the year.

Twitter Cleans Up Its Platform

Twitter attributed the growth it saw in its financial figures to the company’s commitment to better secure its platform for its users. CEO Jack Dorsey emphasized the company's work to improve the health of its platform: "Our focus was on ensuring that our rules, and how we enforce them, are easy to understand.”

Twitter focused on identifying and properly addressing malicious behavior on its platform. The social media giant’s efforts resulted in an 18% drop in reports of spammy or suspicious behavior across all Tweet detail pages.

Twitter also highlighted its continued use of machine learning to improve the relevance of content seen by users. In turn, the company saw its average monetizable daily active users grow 14% year over year, accelerating from 11% in the first quarter.

Global advertising revenues were also up as a result, climbing 21% from last year and 49% from the year before. Overall, Twitter has seen a lot of good growth among its key metrics both internationally and domestically.

The much-needed growth comes as it competes for the younger Gen Z market against competitors such as Facebook FB and Snapchat SNAP who have recently ramped up their efforts to snag market share. Facebook’s Instagram has launched several new features for its users that attempts to seize market share from its competitors. Snap’s partnership with Adidas ADDYY and Amazon AMZN to incorporate more features on Snap’s platform have helped it mitigate the rising competition.

Outlook

While Twitter relies heavily on advertisers for revenue, what truly drives the company is its active users. Without a significant amount of active user growth, advertising companies would lose interest in Twitter. This is why Twitter has focused on making its platform more enjoyable for its users, which has helped the firm put up solid numbers in the past two quarters. For the company's third quarter, management guided for revenue to be between $815 million and $875 million.

Our consensus estimates forecast Twitter to see a top-line increase of 15.58% to $876.26 million, while earnings are projected to drop 4.7% to $0.20 per share. Our Key Company Metrics call for advertising revenue to grow by 16.6% to $757.76 million and data licensing revenue to bring in $120.64 million for a 11.7% hike. Total monthly active users are expected to reach 336.8 million, which would mark a 3.32% increase from the year-ago quarter.

Fiscal 2019 estimates project earnings to surge 186% to $2.46 per share on the back of a 17.1% climb in total revenue to $3.56 billion. Advertising revenue is expected to generate $3.09 billion for a 18.1% gain from 2018 and data licensing is predicted to grow 11.3% to $473.1 million. Monthly active users in fiscal 2019 are expected to grow 5.16% to 337.6 million.

Bottom Line

Twitter has benefited from cleaning up its platform of bots and other malicious accounts that may hinder a user’s experience. The company’s efforts have paid off, with its monthly active users figure up. This has helped Twitter attract more attention from advertisers, which has, in turn, driven revenue numbers up.

Twitter is currently trading at a discount relative to its industry at 16X its forward earnings, which can provide investors with a solid entry point in a company that has made the right adjustments to rekindle its growth. After all, it is trading around 16% below its 52-week high which can give the stock room to grow if its Q3 report can impress Wall Street.

TWTR is currently a Zacks Rank #2 (Buy).

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