Will Twitter Be Able To Beat Expectations In The Second Quarter?
Twitter’s (NYSE:TWTR) second quarter earnings, which are scheduled to be released on Tuesday, July 28, will be keenly tracked by market participants — these earnings will come amidst a host of ongoing strategic changes being undertaken at the company. [1] More specifically, analysts are eager to get an update on the CEO search process, as well as the progress being seen against the company’s recent product development initiatives. Moreover, since the last quarter’s earnings disappointed on top-line growth, due to less-than-anticipated monetization on direct-response ad products, investors will keep a close-eye on ad monetization metrics in the second quarter. We think Twitter could report slow growth in its user base for Q2, on account of trends that we saw with the April earnings release. At the same time, we believe the company’s revenues in Q2 were driven by a rise in mobile and international ad revenues, as well as an increase in ad engagements. In terms of profitability, we expect a year-over-year increase in the EBITDA margin for the second quarter, helped by operating leverage.
See our complete analysis for Twitter
Update On Strategic Initiatives Awaited
We believe the second quarter earnings call should reflect on the management’s vision for the future of the micro-blogging platform. We think a key reason why Twitter’s stock has under-performed in the recent past has been the inability of management to communicate their story and vision clearly to both investors and users. Hence, we’d like to get some update on CEO search process and also on new strategic initiatives being taken by the company to reinvigorate its outlook.
A new initiative ‘Project Lightning’, which brings to light Twitter’s effectiveness as a real-time network in a user-friendly manner, is being touted as one of the key features that could bolster growth of the social network. We are eager to know about the timelines of this product initiative. Apart from this, we will also look for results from other product enhancements, such as instant timelines, highlights, logged-out homepages, etc. This will help us in modelling Twitter’s engagement metrics in the coming future.
Ad Monetization (Pertaining To Direct Response Products) And User Base Growth Will Be The Other Key Highlights
The principal factor that had caused the steep fall in Twitter’s stock price in the wake of Q1 earnings release was the under-performance on revenue growth. This resulted from problems with monetization of direct-response ad products which are ads that lead users to undertake specific actions such as downloading an app or visiting a website. As a result, Twitter achieved top-line growth of just 74% in Q1 2015, which was much lower as compared to 97% growth that was seen in Q4 2014. Going into the Q2 2015 earnings report, we are curious to see how these ad products performed during the second quarter. This will also help us gauge the demand for advertising on Twitter. A large part of our valuation for the company is driven by forecasts of significant increase in ad load levels on the platform. And if Twitter continues to see challenges in this area, this could warrant downside scenarios in our model.
We believe Twitter’s ad revenue growth during the second quarter, will be driven by multiple factors including increase in ad engagements and average price per ad engagement. Additionally, we expect growth in international ad revenues to outpace increase in U.S. ad revenues during the second quarter.
Twitter’s active monthly user (MAU) count, which was seen at 302 million at the end of first quarter, is another key metric that will be tracked in the earnings report. The slowing user growth on Twitter, which has trailed other social networks such as Facebook, Instagram and Snapchat, has been a key concern among investors in the recent past. As user growth was off to a slow start in the first quarter and ito April, according to management, we suspect that the deceleration continues in the second quarter.
Our 48.37 price estimate for Twitter’s stock represents over-30% upside to the current market price.
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Notes:- Twitter to Announce Second Quarter 2015 Results, Twitter Investor Relations, July 6, 2015 [↩]