Twitter Q2 earnings: will it help the company recover from its recent turmoil?

When will Twitter report its Q2 earnings?

Twitter Inc. is expected to report earnings on Friday 22 July before the market opens. The report will be for the fiscal Quarter ending in June 2022.

What to expect?

A year-over-year decline in earnings on higher revenues is anticipated when Twitter reports its results for the June quarter. According to Zacks Investment Research, the consensus EPS forecast for the quarter is $-0.06, lower than the previous quarter's 0.77 per share and below the same quarter last year.

However, it must be noted that it’s always not easy to predict earnings for Twitter and in the past four quarters, the reported figure has frequently missed or exceeded the expected number by a wide range.

What to watch?

Twitter hasn't moved from centre stage and not due to its operational performance but the drama show with headline generator Elon Musk.

The most recent update from their month-long dispute over court dates has led to the San Francisco-based social media platform stating they need only four days to prove the world’s richest man must commit to his agreement and pay $54.20 a share. A five-day October trial was ordered by Chancellor Kathaleen McCormick, despite attempts from Musk to delay the trial till next year.

It’s understandable that the discussion point will not only be on how Twitter performed for the second quarter but what the value and outlook is for the business.

• Revenue

Twitter’s Q1 revenue was reported as $1.20 billion, an increase of 16% year on year. The uptrend is forecast to continue in the second quarter but at a slower pace with Q2 revenue expected to be $1.33 billion, up 11.8% from Q2, 2021.

The advertising revenue will be closely watched for Q2 as investors expect a declined demand for advertising thanks to the slowing economy and tightening economic environment.

• Subscription and Monetizable daily active usage (mDAU)

Subscription and user information is the crux of the matter between Twitter and Elon Musk with the latter continuously questioning the social media platform and arguing they misled regulators about fake accounts and bots.

Although the revenue generated from subscriptions has decreased 31% in the previous quarter, the average monetizable daily active usage has climbed to a new record of 229 million for Q1, up 15.9% compared to Q1 2021. Moreover, the average international mDAU has shown strong momentum by rising by 18.1%. Overall, the social media platform has demonstrated its strength and capability to monetize its robust traffic from every corner of the globe.

• Cost and expenses

Twitter is no exception to the challenges facing companies when it comes to rising costs and as a high-growth technology company, the pressure is expected to be even more severe.

During the first quarter, Twitter reported an increase of 35% year-on-year for its costs and expense, totalling 1.33 billion. The soaring expense has dragged its operating margin into the red territory at -11%. While during the second quarter, the new 40-year high consumer price level is expected to exacerbate the issue even further.

Share price

Twitter's stock slumped from above $50 a share when the deal was announced to as low as $32.55 in July when Elon Musk announced his decision to terminate his $44 billion deal.cAt the time of writing, Twitter still wants Elon Musk to complete the deal at the agreed price of $54.20 a share, even though its share price has not been able to match that price point.

In the scenario that Twitter holds the upper hand in litigation and forces the billionaire to settle the dispute with a negotiated number, the potential will still be encouraging for Twitter's shareholders given that the gap between Musk's agreed price per share and Twitter's current price is substantial.

On the flip side, the months-long dispute around Twitter's fake user data has already marked a permanent scar on the platform's credibility, which will undoubtedly damage the company's value in the long run.

From a technical point of view, the share price has climbed from its bottom, following the ascending trend line since early July and it looks like Twitter is on track to shrug off the recent haze and regain the $40 threshold. Before that happens, the price needs to conquer the 100-day moving average level. The RSI is also moving in the direction of supporting a near-term bull view, however, if the Q2 earnings turn out to be a disappointment, we might see the price pull back to the $37 level as imminent support.

Twitter daily chart