* Reports 3Q 2019 results on Thursday, Oct. 24, before the open
* Revenue expectation: $873.63 million
* EPS expectation: $0.20
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 when compared with bigger rivals such as Facebook (NASDAQ:FB) Inc (NASDAQ:FB), it can still build a sustainable business that investors can trust in this highly dynamic environment.
Firm Action on Toxic Content
CEO Jack Dorsey has been fairly successful in his efforts to rid the site of toxic, abusive and harassing content. According to Twitter, such efforts resulted in an 18% decline in reports of spam or other suspicious behavior during 2Q. In the same period, the company also changed the rules of its platform to make them easier to understand and released a new version of its website.
To further improve user engagement and entice advertisers, Twitter is focusing more on video-content partnerships with 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.
But to keep things in perspective, Twitter’s improving financial health is coming after years of missteps and declining usage since it went public in 2013. Even after accounting for this year’s gains, its stock is still down about 20% during the past five years.
Going forward, we see a good case for investors to own the stock. Future sales growth could come from global jurisdictions where 79% of Twitter’s daily users are based. In the U.S., which is where Twitter makes most of its revenue, 2020 Presidential elections provide another opportunity to further boost user engagement, especially as the U.S. President Donald Trump is one of Twitter’s most avid users.
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 trajectory, we think the company has to show sustained revenue growth with an improvement in user metrics.
We think Twitter 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.
Investors trying to decide which social media stock is worth owning over the long-run, as the sector comes under increasingly intense regulatory scrutiny, would do well to take a close look at micro-blogging site Twitter Inc (NYSE:TWTR). This is the one player in the social media industry that has consistently beaten expectations and is firmly on track with its growth plan.
2Q was the seventh straight quarter in which Twitter turned a profit. And when it comes to attracting new users, the company showed that it can meaningfully improve that metric in an era when social media giants are under great pressure to do more to protect their networks from manipulations.
The company added 5 million daily users in 2Q, bringing the total to 139 million, in its largest year-over-year increase since the summer of 2017. As the recovery takes hold, investors are also becoming comfortable owning Twitter stock: it's gained more than 40% this year to trade at $40.09 at yesterday's close. The jump in the stock’s value is about double the gains that the tech-heavy NASDAQ delivered in the same period.
