Twitter faces high earnings bar after Facebook

The Twitter logo is displayed on the screen of an Apple iPhone. (Bloomberg pic)

SAN FRANCISCO: Twitter has a lot to live up to when it reports earnings on Thursday morning after better-than-expected results from rivals Facebook and Snap sent their shares soaring.

With its move into new advertising formats such as video and efforts to improve user experiences with a crackdown on spam and harassment, some analysts see Twitter also beating Wall Street’s projections.

The social media company is expected to report fourth-quarter revenue growth of 19% for a total of US$867.1 million, according to the average of 32 estimates compiled by Bloomberg.

“We expect improved advertising execution and likely upside to consensus and guidance,” Raymond James analyst Aaron Kessler, who has a market perform rating on the stock, wrote in a research note.

Twitter so far has managed to boost sales despite stagnant user growth. Monthly active users are expected to total 324 million in the fourth quarter, down from 326 million in the previous quarter, according to the average of five estimates compiled by Bloomberg News. The San Francisco-based company’s shares have gained about 6% since Facebook reported revenue that exceeded estimates on Jan 30 as advertisers continued to spend money on its platforms despite privacy scandals.

The shrinking pool of monthly active Twitter users has increased focus on daily users, which continue to grow. BMO Capital Markets analyst Daniel Salmon expects daily users to expand by 10% in the fourth quarter, compared with the year earlier, up from 9% growth in the third quarter.

In addition to engagement, analysts are focused on revenue growth relative to the number of users. Mark Mahaney, an analyst with RBC Capital Markets, projects ad revenue per monthly active user to rise 19% compared with a year-ago period.

The options market is signalling a 13% change in the share price following the earnings release. That’s in-line with the average move after the last eight reports, which were evenly split between gains and declines.

About 8.5% of the open interest in Twitter is set to expire this week, with calls outweighing puts by 29%. The most widely held contracts are the US$38 calls, which implies a 12% rally from current levels. Despite shares being up 18% year-to-date, implied volatility is elevated at 205% versus a three-month historical average of 59.