- Reports Q2 2019 results on Friday, July 26, before the open
- Revenue expectation: $828.9 million
- EPS expectation: $0.18
If the recent past offers any clue, then Twitter Inc (NYSE:TWTR) is well set to produce another strong quarter when it reports Q2 earnings tomorrow.
After the sustained turnaround efforts of the past year, the company has achieved financial stability. Its sales from advertising rose 18% in Q1, the fifth consecutive period of improvements.
On the spending side, Twitter showed that it can meaningfully cut costs in an era when social media giants are constantly under pressure to do more to protect their networks from manipulations. The end result is that profitability is improving.
According to analysts’ consensus estimates, Twitter is likely to show a 17% jump year-on-year in sales in 2Q to $829 million. Twitter likely earned an adjusted $0.18 a share profit in the period, compared with the $0.17 it produced in the year-ago period.
As the recovery takes hold, investors are also becoming comfortable owning Twitter stock: it's gained more than 30% this year to trade at $38.73 at yesterday's close.
What’s impressive about Twitter’s turnaround is that the company has been able to show that with a smaller base of daily-active users, it can still build a sustainable business which investors can trust in this highly dynamic environment for social media companies.
In a latest development, media reported this week that the U.S. Justice Department is opening a broad antitrust review into whether dominant technology firms are unlawfully stifling competition, adding a new layer of uncertainty for social media companies such as Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL).
Twitter’s Clean-Up Drives Success
It’s unclear whether Twitter will be included in this probe, but what makes us more confident about the micro-blogging site is that its CEO Jack Dorsey has been quite successful in his efforts to rid the site of toxic content amid strong criticism that social media companies have failed to curb the exploitation of personal data, election meddling and hateful posts.
According to Twitter, about 38% of abusive content on the site is now being detected through technology and flagged for human review, up from none last year. These efforts have also restored advertisers’ confidence who now see Twitter as a valuable platform to reach their audience. In the last quarter, Twitter posted a jump in monetizable daily active users to 134 million, beating analysts' forecasts for about 128.4 million.
To further improve user engagement and entice advertisers, Twitter is focusing more on video-content partnerships with the large media companies and brands. It has recently overhauled both the camera function and desktop site. The company has also rolled out a Snapchat-like camera feature that lets users post videos or photos in a swipe.
Bottom Line
Even after a powerful rally this year, Twitter shares are still only about halfway to their all-time high of $74.73 reached in December 2013. In order to continue this upward move, we think Twitter has to show sustained revenue growth with an improvement in user metrics. We think the company has achieved solid momentum in turning its platform into one that advertisers increasingly value. Any post-earnings weakness should be a buying opportunity for those looking for a good entry point.