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Can Twitter emulate the success of Facebook?

Twitter is set to report earnings for its second quarter on Tuesday 29 July. The social media company is expected to report a loss of $0.01 per share on revenue of around $283 million.

iPhone with Twitter on the screen
Source: Bloomberg

First-quarter revenue was $250 million, an increase of 119% on the previous year’s Q1 of $114 million. Yet the monthly active user number was not what most investors had hoped – only a 6% gain versus the previous quarter.

Truth be told, many saw the Twitter IPO as a proxy for the missed capital gains in Facebook and this would explain the 60% spike to what is still its all-time high of $74 per share, back at the end of 2013.

Brokers look rather bullish on the stock with only six sell recommendations – this in spite of the stock price witnessing a bit of a slump since the release of its Q1 earnings, shedding almost 50% over the past seven months.

Facebook’s recent performance

Facebook comfortably beat expectations on Wednesday, announcing net income of $791 million for the most recent quarter – this represents an increase of 138% on the $333 million seen in the same period in 2013. Monthly active users increased by 14% to 1.32 billion users.

It should not come as a surprise that Twitter benefited from a spike higher in the aftermath, even though its monthly active user number is well below that of Facebook, at around 260 million. We may well see a boost in this number for last month, in any case. As a medium, the social media site certainly came into its own during the World Cup, with a huge uplift in activity as the competition heated up in Brazil. There were 618,725 tweets per minute posted during Germany’s final victory over Argentina, which saw a new record made for the total number of tweets posted during a sporting event – 35.6 million.

Management changes

A shake-up in management has yet to bear fruit. News that the company was appointing former Goldman Sachs banker Anthony Noto as its chief financial officer led to a small but insignificant northward move in the share price.

With his banking background, and indeed his previous tenure as CFO of the NFL, he will be well aware of what investors seek. Gaining more ground in TV and advertising will more than likely be his first action and provide the new direction that the company clearly needs in order to attract users, revenue and ultimately investors.

An encouraging comparison

The comparisons and correlations in price action between the two companies are somewhat noteworthy.

In the three months following the IPO, the Facebook share price fell 48% to $18 in September 2012, and spent about 10 months in a fairly tight consolidation range, finding any break above $30 elusive and short-lived.

Twitter on the other hand has generally managed to stay above the $30 mark – it’s the $40/43 zone that represents the resistance.

We may be seeing the emergence of an inverted head and shoulders pattern on the daily chart. A break of the early July highs could well see this pattern completed and would break the seven-month downtrend with a degree of conviction.

Twitter chart

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