Twitter (NYSE:TWTR) is a company that has definitely seen better days. Over the past year, investors have been concerned with the company's ability to grow and I believe that the concerns are likely to get worse today. TWTR is scheduled to release its earnings after the closing bell today. Unfortunately, I believe that this will do nothing more than drive fear deeper into the minds of investors. Today, we'll talk about what I'm expecting to see from earnings, how the market is likely to react to the news and what we can expect moving forward.
What We Can Expect
Let's get one thing straight here. The truth is that this is one of the very few earnings reports I've seen where earnings per share and revenue really don't matter very much. The truth is that the company can produce strong earnings -- and still fall -- or weak earnings and still grow. The key figure that investors are going to be looking for is user growth, which will dictate the market's reaction regardless of earnings and revenue.
The truth is that TWTR has been struggling to bring new users into its social network and maintain them as active users for quite some time. In fact, that's why Jack Dorsey is currently the CEO of the company instead of Dick Costolo. Costolo resigned under investor pressure as a result of user growth.
That said, I don't think that this earnings report is going to be positive for TWTR. Sure, the company may see growth in revenue and earnings thanks to changes it has made, but when it comes to user growth, I'm not expecting to see much upside. The truth is that while growth has been the real problem for the company, the leadership at TWTR seems to be blind to the issue. They haven't focused on user growth at all. Instead, they are trying to drive more revenue from the users they currently have. The problem with this is that consumers don't like to see excessive advertising, which is what Twitter has been pushing lately. As a result, I expect to see slow growth on monthly active users once again. Considering the focus of the company, I wouldn't be surprised to see user growth recede.
Market Reaction
While I would love to see a positive reaction to earnings in the market, that not likely. The truth is that I expect the stock to tank. It doesn't really matter if TWTR produces strong earnings and strong revenue. All that seems to matter is better user growth. After all, if growth isn't happening, earnings and revenue will eventually plateau. Because I don't expect good news on the user-growth front, I also do not expecting much movement post earnings.
What's Ahead?
Moving forward, I don't have very high hopes for TWTR. While the company is too big to just disappear, it isn't too big to realize declines on its stock. The truth is that the company has a fundamental lack of focus, poor planning and poor management at the moment. At the end of the day, Dorsey isn't doing much to save TWTR and as his efforts to solve the number-1 problem continue on the minimal side of the coin, we can expect to continue seeing declines. All in all, I believe that TWTR is a stock that should be valued at $10 per share or lower. Until it gets there, it's not very interesting.
What Do You Think?
Where do you think TWTR is headed moving forward and why?