Twitter Inc is a great business, it has a great product, it is being managed by a great team (we hope) but it is not necessarily a great stock. The stock has been on a downward spiral that doesn’t seem to have an end, new investors are not buying the stock, and most of the people holding the stock are only waiting for it rise to their “buy price” so that they can sell with minimal losses and go look for better stocks in the market.
In the last one year, the shares of Twitter had dropped more than 66% and the stock has lost another 25.3% in the year-to-date period. The firm is set to release its first quarter (Q1 2016) earnings this afternoon and the general idea on Wall Street is that it doesn’t have much to offer investors in the way of positive surprises. Profits have been elusive at the firm, user growth has stagnated, and the firm has not been able to make much money from its current users.
Pay attention to these metrics when Twitter reports
Despite the weakness in Twitter’s current situation and the gloomy prospects of the firm going forward, some analysts have opined that it might be smart to think twice about giving up on the firm. To start with, analysts expect Twitter to deliver earnings of $0.10 on revenue of $608M to mark a 39% year-over-year increase in revenue. Analysts also expect its user base to increase slight from MAUs of 305M to 307M or 310M – the stock crashed almost 12% after its MAUs dropped from 307M to 305M last quarter.
Other things that might have the special attention of investors when Twitter releases its earnings include changes to its board. CEO Jack Dorsey has tweeted about potential changes to the board in a bit to bring in new hands that might make it easy for the management to adopt new changes. We can expect formal word and an unveiling of the two new members that were appointed to the board.
You might also want to tune in into the earnings call for more details on the deal between Twitter and the NFL. Twitter beat other tech and social media heavyweights to win the rights to stream 10 NFL games on its platform. The details of the deal are still sketchy and we can expect analysts to ask pointed question about the deal during the earnings call.
Wall Street knows exactly what is wrong with Twitter
Scott Kessler, an analyst with S&P Global Market Intelligence noted that the firm is still a high-risk investment even though it might meet/beat earnings estimates. In his words, “People talk about Twitter as kind of a no-growth company… “Our risk assessment reflects the company’s nascent business model, somewhat unproven monetization efforts and lack of profits, offset somewhat by a substantial global brand and platform and strength in mobile”. Nonetheless, Kessler has a $21 price target on Twitter to suggest a 22.95% upside potential from current prices.
Another analyst, Michael Graham of Canaccord Genuity notes that Twitter must first solve its user-growth problem before it could even think about restoring investor confidence. In his words, “expect more audience challenges in Q1… “We believe revenue should be fine, but for the stock to regain momentum and drive higher ad penetration, user growth must show evidence of turning around.” However, Graham considers Twitter a “Buy” with a $23 price target – to suggest a 34.66% upside ahead.