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Twitter’s share price on watch for Q4 earnings

Twitter’s share price has fallen close to 45% over the past six months. Can its upcoming Q4 earnings lift sentiments?

When does Twitter report earnings?

Twitter is set to release its quarter four (Q4) 2021 financial results on 10 February 2022, before the market opens. At the time of writing, expectations for its Q4 earnings per share (EPS) is coming in at $0.35, down 7.9% year-on-year (YoY).

Twitter’s earnings – what to expect

Shares of social media companies have been under scrutiny lately, with uncertainty revolving around whether these companies can weather the impact from Apple’s iOS privacy updates, along with increasing competition from other platforms such as TikTok and YouTube. To recall, Apple has previously implemented new privacy controls, which limit digital advertisers from tracking iPhone users for advertising purposes without their consent. As a result, social media ads may be less effective at targeting potential consumers and ad pricing may be capped. Meta Platforms’ recent plunge of more than 26% last week served as a reminder that companies which failed to mitigate the impact of Apple’s revamped ad policy will be heavily punished.

That said, one may find some relief that the extent of impact of the regulatory changes on social media companies is not broad-based. Contrary to it having an industry-wide impact, Snap’s recent 20% increase of daily active users YoY in Q4 and higher-than-expected quarter one (Q1) sales-growth guidance has proven otherwise. For Twitter, its previous quarter three (Q3) results have shown some slowdown in YoY growth, which could be partly due to normalisation from the Covid-19-induced boom and the regulatory changes. While the Q3 revenue impact of Apple’s privacy-related iOS changes were lower than expected, the overall results were not well-received by the markets as Twitter’s share price continued on its downtrend ever since.

For the upcoming results, market participants will continue to watch if growth rate will normalise further and whether sales growth can still maintain above its pre-Covid-19 periods.

First earnings release under CEO handover

The upcoming Q4 results may be a first test for the new Twitter’s chief executive officer (CEO), Parag Agrawal, after taking on the handle from ex-CEO, Jack Dorsey. From its previous earnings call, the management reiterated its goal of generating $7.5 billion or more of annual revenue in 2023, which may seem questionable at the current point in time. This is considering that its last twelve months’ (LTM) revenue is at $4.8 billion and Apple’s iOS updates will be a headwind for ad pricing growth ahead. The company’s strategy is to adopt machine learning and personalisation to improve ad targeting, which may seem promising at first sight, but considering that it is still at its early stages, markets will be looking for signs to see if it can help to mitigate the impact from Apple.

Any guidance from the new CEO on its longer-term growth strategy will also be on watch in the upcoming earnings call.

Valuation

Twitter’s current price-to-sales ratio stands at 6.15, compared to Meta Platforms’ 5.47 and Snap’s 16.94. Compared to its five-year historical average, it is actually trading one standard deviation below its mean, suggesting that markets are still not confident of its growth trajectory forward. Much will depend on the upcoming results to see if a valuation re-rating is warranted, with any positive surprise potentially driving a surge in share price such as in the case of Snap as seen last week.

Twitter share price – technical analysis

Twitter’s share price has been trading in a downtrend, as reflected by the series of lower highs and lower lows since its peak in July 2021. The higher lows formed on the moving average convergence divergence (MACD) may suggest some waning downside momentum and along with the relative strength index (RSI) in oversold region on the weekly chart, these may increase the chances of a near-term rebound. That said, whether it marks the near-term bottom for share price still remains to be seen, considering that the overall trend still seems downward-bias.

One may watch for a break above the $40.00 level to form a new higher high as a potential indication of a reversal in sentiments. Near-term support stands at $33.18, where prices are attempting to hold up over the past two weeks.


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