What's in Store for Twitter (TWTR) This Earnings Season?

Twitter, Inc.TWTR is set to report first-quarter 2017 results on Apr 26 before the opening bell. The company recorded a positive earnings surprise of 72.73% in the last quarter. It has also delivered an average positive earnings surprise of 44.72% over the four trailing quarters. Let's see how things are shaping up for this announcement.

Factors to Consider

User growth and ad revenues will again be investors' areas of interest in the upcoming 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 319 million users, Twitter falls way behind other social media services like Facebook Inc FB , which has over 1.8 billion users. The complex nature of the service has been often considered as a major hindrance to user growth.

Twitter has been making user-friendly changes to its platform to make it more appealing. For instance, the company changed the way it counts 140 characters by doing away with calculating media attachments and @names in the count, enabling users to express more in tweets.

Twitter, Inc. Price and EPS Surprise

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

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.

However, given the ad revenue potential, competition has heated up in this space with all social media companies including Twitter, Facebook and Snapchat, are pumping huge resources to increase live video viewing on their platform. Recently, Amazon won the NFL streaming rights which were last year secured by Twitter.

So far, "live" and user-friendly changes are yet to move the needle for Twitter. In addition, 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.

Analysts observe that Twitter should now focus on daily active user growth rate. MarketWatch quoted managing director of MKM Partners, Rob Sanderson saying "We think DAU growth less than high single digits would be disappointing and double digit may be required to keep remaining optimism alive."

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 16 cents.

Zacks Rank: Twitter has a Zacks Rank #3. Though Zacks Ranks #1, 2 or 3 increase the predictive power of the ESP, the company's Earnings ESP of 0.00 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:

Teradyne, Inc. TER has an Earnings ESP of +2.63% and a Zacks Rank #1.

Seagate Technology plc STX has an Earnings ESP of +3.77% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

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Twitter, Inc. (TWTR): Free Stock Analysis Report

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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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