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Twitter earnings in focus as stock tumbles

The share price of the social media company is suffering as its number of new users is slipping. 

Twitter app open on mobile device
Source: Bloomberg

Twitter will release its fourth-quarter results on 10 February, and traders are expecting revenue of $709 million and earnings per share (EPS) of 12 cents. That compares with the third-quarter revenue and EPS of $569 million and EPS of 10 cents. The company will report its full-year numbers on the same date, and investors are expecting revenue of $2.21 billion and EPS of 35 cents. These forecasts represent a 57% jump in revenue and a 150% increase in EPS.

Twitter has had a tough time recently, as a serious shake up of senior management has compounded investors’ concerns for the company. The founder, Jack Dorsey, returned as CEO and with him came a considerable amount of job cuts and the firm has drafted in new blood for top roles. Traders will be looking for concrete plans as to how the company will change. The social media organisation is still attracting new users but the growth rate is slipping and traders are nervous as it is one of the key measurements for the business. 

 High valuation

  Trailing 12-month P/E Forward 12-month P/E P/B value Dividend yield
Twitter N/A 48.32 2.71 0%
Facebook 97.35 44.5 6.58 0%
Alphabet (A line) 34.10 25.12 4.31 0%
LinkedIn N/A 71.75 5.88 0%
NASDAQ 20.94 17.03 4.14 1.28

 

Twitter has a high forward looking price to earnings ratio, and this can be viewed as high future earning potentially. But it also can equate to an overvaluation, and seeing as Twitter made a loss last year the latter is more likely. The high price to book value figure adds weight to the argument that the stock is overvalued. The absence of a dividend compounds the disappointment that the stock more than halved in value over the past year.

Earnings vs estimates
Out of the past four quarters, Twitter has exceeded all of the revenue estimates. In terms of EPS, Twitter only beat the expectations once. High volatility can be expected after the announcement, on average the stock has moved 12.6% in the wake of the figures being released, and only one of those moves was positive.

Short interest cools off
In the past year the number of short positions has increased by 85% and the stock has dropped by 56% during that time frame. Since Twitter announced its third-quarter results (October 2015) the stock has dropped by 44%, but the level of short interest has only increased by 3.9%. 

 Banks are buyers

  Buy ratings Hold ratings Sell ratings
Twitter 16 24 2
Facebook 47 3 1
Alphabet (A line) 45 4 0
LinkedIn 37 6 0

 

Twitter has had a difficult 2016 so far, with the stock losing 26% of its value in less than a month. With the exception of a sharp bounce back last week, the stock broadly created a series of lower lows and lower highs this month, and this points to additional losses. The share price is above the support at $16.40, for now, and an hourly close below it would add to the bearish sentiment, with the support of $15.50 (all-time low) representing the next major support level in sight. An hourly close above $19.03, would indicate bullish sentiment, with $20.40 as the next major resistance level to watch. 

Twitter chart

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