Twitter (TWTR) Down 12.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Twitter (TWTR). Shares have lost about 12.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Twitter due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Twitter Q4 Earnings Miss, User Growth Aids Top Line

Twitter reported fourth-quarter 2019 non-GAAP earnings of 25 cents per share that missed the Zacks Consensus Estimate by 10.7% and decreased 19.4% year over year.

Revenues grew 10.8% year over year to $1 billion, which beat the Zacks Consensus Estimate by 0.4%.

User Details

Average monetizable daily active users (mDAU) were 152 million in the reported quarter compared with 126 million in the year-ago quarter and 145 million in the previous quarter.

Average U.S. mDAU was 31 million compared with 27 million in the year-ago quarter and 30 million in the previous quarter. Moreover, average international mDAU was 121 million compared with 99 million in the year-ago quarter and 115 million in the previous quarter.

User growth was primarily driven by product improvements. The company’s success in providing relevant content to people’s Home timelines and notifications contributed to mDAU growth. Notably, mDAU growth was broad-based, with double-digit increases in all of Twitter’s top 10 markets.

Topics, launched in the fourth quarter, also drove growth. Twitter stated that as of Dec 31, 2019, there were more than 1,700 Topics that people could follow in six languages, with new Topics being added every week.

Lists, which makes it easier for people to create and share great timelines about the things that matter to them, improved engagement. In the fourth quarter, the company allowed users to share Lists on both iOS and Android.

Twitter has been focusing on reducing abuse on its platform. The company has improved its ability to proactively identify and remove abusive content from the platform, which resulted in a 27% decline in bystander reports on Tweets that violate the company’s terms of service in the reported quarter.

Moreover, the company launched author-moderated replies globally in the reported quarter.

Revenue Details

U.S. revenues (59% of revenues) increased 17% year over year to $591.1 million. International revenues (41% of revenues) were up 3% to $416.3 million.

Japan remained the company’s second-largest market, contributing $139 million or 14% of total revenues in the reported quarter.

Advertising revenues rose 12% to $884.5 million. U.S. advertising revenues totaled $509.2 million, up 20% year over year. International ad revenues grew 3% to $375.4 million.

Ad engagements increased 29% year over year, primarily benefiting from increased ad impressions driven by audience growth and improved clickthrough rates (CTR) across most ad formats.

Video ad formats continued to show strength, particularly the company’s Video Website Card and In-Stream Video Ads.

However, cost per engagement (CPE) decreased 13% year over year due to unfavorable mix shift from MAP to video ad formats (which have lower CPEs) and price decreases across most ad formats.

Data licensing and other revenues increased 5% from the year-ago quarter to $122.8 million.

Twitter’s total costs and expenses were $749.1 million, up 21.2% on a year-over-year basis.

Adjusted EBITDA declined 6.5% year over year to $370.7 million.

GAAP operating income plunged 26.1% from the year-ago quarter to $152.9 million.

Balance Sheet

As of Dec 31, 2019, Twitter had $6.64 billion in cash, cash equivalents and marketable securities. This includes net proceeds of $692 million in new long-term debt, which the company issued in December 2019 for general corporate purposes.

In the fourth quarter, adjusted free cash flow was $127 million compared with $263 million in the year-ago quarter.

Guidance

For first-quarter 2020, total revenues are expected between $825 million and $885 million. Moreover, operating income is expected between breakeven and $30 million.

For 2020, capital expenditures are expected between $775 million and $825 million, weighted toward the second half of the year.

Twitter expects full-year headcount growth of more than 20%, especially in engineering, product, design and research. Management anticipates total costs and expenses to grow 20% in 2020.

The company’s investments also include building a new data center in 2020 to add capacity to support audience and revenue growth.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -37.29% due to these changes.

VGM Scores

At this time, Twitter has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Twitter has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.