What to Expect from Twitter (TWTR) this Earnings Season?

Twitter, Inc.TWTR is set to report fourth-quarter 2016 results on Feb 9 before the opening bell. The company recorded a positive earnings surprise of 33.33% in the last quarter. It has also delivered an average positive earnings surprise of 38.08% over the four trailing quarters. Let's see how things are shaping up for this announcement.

Factors to Consider

User growth, ad revenues and profitably will once again be investors' areas of interest as Twitter reports its fourth-quarter 2016 results. Twitter has been a social phenomenon but somehow hasn't been able to leverage that success to boost user growth.

At a little over 317 million users, Twitter falls way behind other social media services like Facebook Inc FB , which has over 1.8 billion users. Even Facebook's subsidiary, Instagram has over 600 million users. The intricate nature of the service has been widely considered as a major hindrance to user growth.

Ever since founder Jack Dorsey was reinstated at the helm in Oct 2015, Twitter has been making user friendly changes to its platform to make it more appealing. For instance, the company has changed the way it counts 140 characters. It has done away with calculating media attachments and @names in the count, enabling users to express more in tweets.

Moreover, to improve ad revenues, Twitter has been hawk eyed on boosting video content, especially "live" content on its platform. This is because online video content generates relatively more revenues than its text-based counterparts. Given the ad revenue potential, all social media companies right from Twitter to Facebook to Snapchat are pumping huge resources to increase live video viewing on their platform. Last year, Twitter signed various live streaming deals focusing on live sports as well politics .

Dorsey had commented that online video budgets are over $9 billion to $10 billion alone in the U.S and streaming deals will fuel a "long-term shift away from desktop video to premium mobile environments and we believe Twitter is well positioned to benefit from that shift."

However, "live" and user friendly changes are yet to move the needle for Twitter. Plus, continuing investments in product development, increasing costs related to international expansion and higher sales & marketing expenses continue to impact performance. Mass exodus at the top management level isn't helping either.

To achieve that ever elusive turnaround, Dorsey and company are now streamlining operations and cutting down on costs. Twitter recently sold its developer product Fabric to Alphabet Inc. in sync with its focus on re-building its core businesses and lowering expenses of its non-core businesses.

We believe that focus on live and user friendly changes could do the trick for Twitter but it is going to be heavily time consuming.

Twitter, Inc. Price and EPS Surprise

Twitter, Inc. Price and EPS Surprise | Twitter, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Twitter is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Twitter has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 11 cents.

Zacks Rank: Twitter has a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Pandora Media, Inc. P with an Earnings ESP of +10.81% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

CenturyLink, Inc. CTL with an Earnings ESP of +1.79% and a Zacks Rank #3.

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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.

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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