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What to Watch When Twitter Reports Earnings

Twitter (NYSE: TWTR) recently put a date to its fourth-quarter earnings release. The company will update investors on how it performed in the important holiday quarter on Feb. 6.

The fourth-quarter report comes after a third-quarter update that disappointed the Street. Shares slid nearly 20% after the social network reported worse-than-expected revenue and non-GAAP (adjusted) earnings per share. Management cited some glitches in its ad products and advertising seasonality as reasons for the disappointing results.

Investors will be looking for signs of revitalized growth when the tech company reports fourth-quarter results. The stock has risen some since its big post-earnings decline, but still sits about 15% below where it was before the third-quarter update.

Ahead of the social network's earnings report early next month, here's a preview of two key areas worth watching.

Image source: Getty Images.

Revenue growth

Considering the company's top-line flop in Q3, the most closely watched figure when Twitter reports its fourth-quarter results will likely be its revenue growth. In Q3, Twitter reported revenue of $824 million -- at the low end of its guidance range for revenue between $815 million and $875 million, and below analysts' average estimate for the key metric. Total revenue was up 9% year over year, a significant deceleration from 18% year-over-year growth in Q2.

While Twitter said its advertising business rebounded in September (the first month of Q4) and that it was seeing strong demand for its ad products, it also said that headwinds from glitches in revenue products were lingering into the fourth quarter.

"While we are taking steps to remediate these issues, we expect them to continue to weigh on the overall performance of our advertising business in the near term," management said in its third-quarter shareholder letter.

Specifically, Twitter guided for fourth-quarter revenue between $940 million and $1.01 billion. The midpoint of this guidance range implies 7% year-over-year revenue growth. Analysts, however, are betting that Twitter's revenue during the period comes in at the high end of this guidance range, growing nearly 10% year over year.

User growth

Beyond Twitter's revenue growth, investors should also look to the company's reported growth in monetizable daily active users. While revenue growth in Q3 was disappointing, the company is firing on all cylinders when it comes to attracting new users and helping existing users become more engaged.

Twitter's growth rate in monetizable daily active users has accelerated for three quarters in a row. The growth rate has gone from 9% in the fourth quarter of 2018 to 17% in the third quarter of 2019.

Can Twitter keep up this strong growth in daily active users?

The company is scheduled to report its fourth-quarter results before market open on Thursday, Feb. 6.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.


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