Twitter (TWTR) Down 1.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Twitter (TWTR). Shares have lost about 1.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Twitter due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Twitter Q1 Earnings & Revenues Increase Year Over Year

Twitter reported first-quarter 2019 non-GAAP earnings of 37 cents per share that skyrocketed 131.3% year over year.

Excluding benefit from deferred tax asset worth $124.4 million, adjusted earnings were 9 cents compared with 8 cents reported in the year-ago quarter.

Revenues increased 18% year over year to $787 million. On a constant-currency (cc) basis, revenues grew 20%.

The Zacks Consensus Estimate for earnings and revenues were pegged at 15 cents and $775 million, respectively.

User Base Details

Average monetizable daily active users (mDAU) were 134 million in the reported quarter compared with 120 million in the year-ago quarter and 126 million in the previous quarter.

Average U.S. mDAU were 28 million compared with 26 million in the year-ago quarter and 27 million in the previous quarter. Moreover, average international mDAU were 105 million compared with 94 million in the year-ago quarter and 99 million in the previous quarter.
 
Twitter’s average monthly active users (MAUs) totaled 330 million, down from 336 million in the year-ago quarter but up from 321 million in the previous quarter. The company will discontinue reporting MAU from second-quarter 2019.

Focus on Reducing Abuse & New Products: Key Highlights
 
Twitter has been focusing on reducing abuse on its platform. Initiatives, including detection of rule violations and improvement in safety of users have been prioritized. This led to removal of 2.5 times more tweets that shared personal information in the reported quarter.

Additionally, the company launched a number of product improvements, including a public prototype app (twttr) and a new Twitter camera.

The primary aim of the public prototype app is to make Twitter more conversational. The new camera makes it easy for users to capture photos and share those by swiping left from their Home timeline.

Moreover, Twitter inked a number of deals with the likes of NBA, Turner Sports and FOX Sports during the reported quarter. These expanded the company’s content portfolio.

Quarter Details

U.S. revenues (54% of revenues) increased 25% year over year to $432 million.

International revenues (46% of revenues) increased 11% to $355 million. At cc, revenues grew 15%.

Japan remained Twitter’s second largest market and accounted for 17% of total revenues that grew 16% year over year to $136 million.

Advertising revenues increased 18% to $679 million. At cc, advertising revenues grew 20%.

U.S. advertising revenues totaled $363 million, up 26% year over year. International ad revenues grew 10% to $317 million.

Ad engagements increased 23% year over year, driven by higher ad impressions and improved clickthrough rates (CTR). Cost per ad engagement was down 4% on improved CTR and mix shift toward video ads.

Nevertheless, momentum in Video ads, driven by Video Website Card and in-stream pre-roll, continued in the quarter.

Data licensing and other revenues increased 20% from the year-ago quarter to $107 million. The company expects moderate data licensing revenue growth in 2019, as the multiyear enterprise renewal cycle is almost complete in data and enterprise solutions (DES).

Twitter’s total costs and expenses were $693 million, up 18% on a year-over-year basis. The growth was primarily attributed to higher infrastructure-related expenses and video content costs.

Adjusted EBITDA increased 19.1% to $290.6 million. GAAP operating income surged 25% from the year-ago quarter to $93.7 million.

Guidance

For second-quarter 2019, total revenues are expected between $770 million and $830 million.

Moreover, operating income is expected between $35 million and $70 million.

For fiscal 2019, management expects GAAP operating expenses to increase roughly 20% year over year.

Twitter expects headcount growth to slightly exceed 2018’s 16% year-over-year growth.

Capital expenditures are expected between $550 million and $600 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Twitter has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Twitter has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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