Trade Twitter with IG

IG analyst - Alastair McCaig

Twitter continues to battle with increasing its user base and monetising it.

It’s all about the users, last time Twitter disappointed with the number of subscribers it had with registered accounts, and since that release at the end of April the shares have traded laterally as investors wait to see if that was a one-off or a precursor of things to come.

On Tuesday 28 July the company is due to post its second-quarter figures, and the adjusted year-on-year earnings per share are forcast to increase from $0.02 up to $0.043, while sales are expected to increase from $312.17 million in 2014 up to $481.38 million in 2015. Importantly, this should see last year’s second-quarter pre-tax loss of $150.24 million converted into a pre-tax profit of $36.21 million in 2015.

Striking a balance between user numbers and slowly being able to monetise them has been the biggest issue for all social media companies, and Twitter is no exception. As such, it has seen institutional analysts strike a cautionary note when reviewing the business. Thirteen have Twitter as a buy, 25 as a hold and only two as a sell, with the twelve-month price target at $46.38 offering some 30% upside from the current share price while still seeing the share at half of their all-time highs above $70 not long after the IPO in November 2013.

Twitter is a product than can frequently be underestimated by the investment community who pigeon-hole it as a social media tool rather than a news-media or a business-media tool, something that it is arguably just as adept at.

As Twitter has matured as a product so too has its consumer base. Much like the shift in demographics with Facebook, the average age of Twitter users has increased with time. As the advantages of a carefully selected base of people to follow has provided a focused flow of news, the business community is increasingly seeing this as a tool to maintain a flow of communication with clients rather than just the odd gimmick tweet gaining success. In a recent survey 63% of Twitter users used the website as their primary source of news flow, up from 52% in 2013. On the back of findings like this the company has been developing the ability to highlight tailored news stories to its subscribers.

When Twitter released its last quarterly figures the disappointing user numbers saw the market punish the share price aggressively. The subsequent three months have seen the shares drift fractionally lower as expectations that the firm will be able to turn around this disappointment have been less than convincing. Once again it will be the updated user numbers that will drive the shares.