Twitter share price: 3 key considerations ahead of Q1 earnings

When will Twitter’s Q1 2020 financial results be released?

US social media company Twitter (NYSE: TWTR) is due to release its financial results for the first quarter of 2020 on Thursday 30 April 2020 before the market opens at 08:00 ET. Here are three things for investors to know ahead of the upcoming earnings.

1. Twitter’s earnings fell below analyst estimates for Q3 & Q4

Analysts polled by Factset have given a consensus earnings per share (EPS) estimate of US$0.10 per share alongside expected revenues of US$788.9 million for the microblogging site’s Q1 2020 earnings.

For shareholders, it is probably worth noting that Q1 2019’s reported EPS of US$0.37 per share surpassed analysts’ EPS initial projections of US$0.15 by 141%. Reported revenue at US$787 million was slightly above analysts’ sales consensus projections of US$774.5 billion.

However, for the last two quarters – Q4 and Q3 of 2019 – actualised earnings fell below analyst estimates by 13.76% and 13.64% respectively, so the overall expectation is likely still leaning towards such a possibility.

In terms of share price, Twitter’s share price is down 6.4% year-to-date, with most of the drop having occurred between February and March 2020 during the peak of the coronavirus outbreak.

The 12-month median share price target for Twitter Inc is US$29 per share, based on Factset estimates tallied from 38 analysts. Of these, 10 brokers have rated the stock a ‘buy’, 29 have given it a ‘hold’ rating, while four have rated it a ‘sell’.

According to IG trading data, Twitter’s stock value has recovered over 35% since 03 April and is trading just above US$30 per share.

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2. Twitter withdrew Q1 guidance but hinted of revenue drop

On 23 March 2020, Twitter withdrew its revenue and operating income guidance for the first quarter of 2020, as well as its outlook for expenses, stock-based compensation, headcount, and capital expenditures for the full financial year, citing the growing impact of COVID-19 on the global operating and economic environment, as well as on advertiser demand.

While the near-term financial impact of the pandemic at that stage was rapidly evolving and difficult to measure, the company did however hint that it expects Q1 revenue to drop slightly on a year-on-year basis – with advertising revenue impacted ‘significantly’.

It also expects to incur an unadjusted (GAAP) operating loss, stating that reduced expenses resulting from Covid-19 disruption are unlikely to fully offset the revenue impact of the pandemic in the first quarter.

Twitter’s Chief Financial Officer Ned Segal also noted that prior to the Covid-19 outbreak, Twitter had a ‘strong start to the year’, including a successful Super Bowl season and overall strength in the US.

3. Twitter likely to experience drop in advertising revenue

As more and more companies lower their spending and digital marketing budgets in the face of the coronavirus pandemic, analysts say companies like Facebook, Google and Twitter will see their global ad revenues significantly impacted.

Bernstein analysts wrote in a note earlier this month that ad prices have declined 20% to 40% since the onset of the outbreak, and Twitter has not been spared from this trend. The lack of quality advertisers has also resulted in ‘poor ads which further decrease ad engagement’, the analysts explained.

‘Engagement is all Covid news, and brands don’t want to be associated,’ they added. ‘It’s one thing to advertise alongside the highlights of a game-winning NCAA basketball shot, it’s quite another to appear next to a mortality rate projection.’

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As Chinese internet giants Baidu and Weibo had learned in February – when the virus was at a peak in the country – a drop in advertising earnings in the range of 5% to 13% is to be expected.

US investment bank Cowan & Co in a recent analysis also revised their advertising revenue forecast for Facebook down by US$15.7 billion to US$67.8 billion for the 2020 financial year.

Still, in terms of total monetizable DAU (mDAU), Twitter had stated that quarter-to-date average total mDAU reached approximately 164 million for Q1 2020 thanks to increased conversations around the health crisis, up 23% from 134 million in Q1 2019 and up 8% from 152 million in Q4 of 2019.

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