Stocks

Twitter (TWTR) to Report Q4 Earnings: What's in the Cards?

Twitter TWTR is set to report fourth-quarter 2020 results on Feb 9.

The Zacks Consensus Estimate for revenues stands at $1.19 billion, indicating growth of 17.7% from the year-ago quarter reported figure.

Meanwhile, the consensus mark for fourth-quarter earnings has remained steady at 30 cents per share over the past 30 days, indicating growth of 20% from the year-ago quarter.

The social media company did not provide its fourth-quarter 2020 revenue and operating income guidance due to the pervasive impact of coronavirus anxiety on advertiser demand.

Twitter announced it would delay the launch of an advertising product until 2021 as it works to integrate new mobile phone data privacy requirements. The company also cautioned that it was hard to predict how advertisers may have reacted to the presidential election in the United States held on Nov 3.

Notably, the company’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and missed twice, the average negative surprise being 1658.5%.

Twitter, Inc. Price and EPS Surprise

Twitter, Inc. Price and EPS Surprise

Twitter, Inc. price-eps-surprise | Twitter, Inc. Quote

Factors to Consider

Twitter’s ad revenues are expected to have slightly recovered despite taking a hit due to the coronavirus pandemic. Small businesses that primarily use social media platforms have resumed controlled ad spending seeking to engage a larger audience around the return of events as well as increased and previously delayed product launches.

The Zacks Consensus Estimate for advertising revenues is pegged at $1.05 billion, indicating growth of 19.1% from the year-ago quarter’s reported figure.

Nevertheless, the company’s initiatives to add features and focus on tackling abuse issues are expected to have helped it expand the monetized user base in the to-be-reported quarter.

In the third quarter of 2020, average monetizable DAU (mDAU) grew 29% year over year to 187 million, driven by global conversation around current events including the run-up to U.S, elections and product improvements.

Additionally, during the to-be-reported quarter, Twitter launched its transient Fleets feature for iOS and Android users worldwide. Once posted, Fleets can be viewed for 24 hours before they disappear so other users can no longer access them.

Moreover, the company’s initiatives to prompt some users to click on links to other websites before retweeting them to stop the spread of misinformation and encourage more thoughtful communication are expected to have helped it expand the monetized user base in the to-be-reported quarter.

Twitter’s improved ability to proactively identify and remove abusive content from the platform has been a notable development in this regard.

Moreover, the company’s updated policies to ban political ads ahead of the presidential election in the United States on Nov 3 are expected to have boosted trustworthiness of the platform.

Further, steady demand for video ad products like Video Website Cards and in-stream pre-roll is likely to have contributed to the top line.

However, the company expects expenses to increase by close to 20% year over year in the fourth quarter due to an increase in investments, which is expected to have weighed on profit margins.

Key Developments in Q4

During the quarter, Twitter announced the acquisition of Squad, a screen-sharing social application that facilitated screen-sharing on mobile or desktop and allowed users to video chat simultaneously. The application was shut down on Dec 12, post the announcement, and is likely to be integrated with the core Twitter application.

What Our Model Says

According to the Zacks model, the combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Twitter has an Earnings ESP of -0.44% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a few companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

CDW Corporation CDW has an Earnings ESP of +6.74% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Corsair Gaming, Inc. CRSR has an Earnings ESP of +14.29% and a Zacks Rank #2.

Take Two Interactive Software TTWO has an Earnings ESP of +16.11% and is Zacks #2 Ranked.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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