Earnings Preview: Twitter

 | Feb 04, 2014 | 11:30 AM EST
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Twitter (TWTR) reports fourth quarter fiscal 2013 on Wednesday, February 5 after the market close. Here is a quick preview of what I am expecting. 

Back in November, I was bullish on the Twitter IPO. I'm still bullish on the stock.

This will be the first quarter Twitter reports as a public company and investors are expecting strong revenue growth, continued user engagement and an ever-growing user base. Analysts are expecting $218 million in revenue and a loss of $0.02 per share. For the entire year, Twitter should have sales of $640 million and a loss of $0.19.

About 89% of Twitter's revenue comes from advertising and I think analyst estimates could be low. We've seen phenomenal ad growth from Facebook (FB) and it seems advertising is shifting toward mobile at an increasing rate. Last year, for example, Facebook grew revenue 54.7% to $7.8 billion.

While the Twitter ad platform is not as mature as Facebook, I see no reason why they can't catch up. Last quarter was Facebook's third "blow out" quarter in a row. Twitter shouldn't be too far behind. I wouldn't be surprised if Twitter reported revenue of $235 million.

Twitter ended the third quarter with 230 million active users, up 39%. Those users blasted out 500 million Tweets a day. Investors are expecting a 25% increase in monthly active users, but I think Twitter should be able to grow users 31% to 243 million users.

Analysts will be watching user-engagement figures as well. Twitter measurers its user engagement in terms of timeline views. Twitter counts the number of times a user logs in and scrolls down his timeline reading Tweets.

In the third quarter, Timeline views were 446 billion, up 67% in the first nine months of 2013. While it's difficult to estimate, according to the prospectus, during the September quarter, the average user viewed their timeline 685 times, up 8% year-over-year. User engagement should grow mid-single digits sequentially.

For fiscal 2014, analysts are expecting revenue to exceed $1 billion, or more specifically $1.13 billion, up 76% year-over-year. That estimate seems low, too. I believe Twitter will guide 2014 as high as $1.4 billion in revenue.

Since Twitter is in such an aggressive growth phase, earnings per share are basically meaningless. I expect EPS to turn marginally positive in the back half of 2014. (By that I mean Twitter will probably earn $0.04 or $0.05.)

As long as Twitter stays on its growth path the stock should continue to go higher.



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