Twitter: Razzle-Dazzle Is Missing

 | Apr 29, 2014 | 10:00 AM EDT  | Comments
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Twitter (TWTR) reports after the close today and with the stock two points from its low, will anyone care? When Twitter came public, I was bullish on the stock.

When a company goes public, it's supposed to dazzle investors for the first few quarters. But Twitter simply met the consensus estimate and didn't produce enough razzle-dazzle. The stock got slammed down hard. Right now, Twitter bulls feel like a bunch of chumps.

In the last six weeks, high growth momentum stocks have been smashed. Investors are demanding old-fashioned things like earnings and dividends.  High multiple names are in the doghouse right now.  If Twitter doesn't deliver a flawless quarter, the stock could go much lower. Fast.

I am expecting Twitter to report $248.8 million in revenue for the first quarter of fiscal 2014, which is about $8 million above the consensus estimate. I expect Twitter to lose $0.02 or $0.03 per share.

I believe the big disappointment last quarter was timeline views. In the fourth quarter, Twitter reported 148 billion timeline views, which was up 26% year-over-year. Investors will be watching this measure closely as user engagement is a key in determining if Twitter can effectively generate revenue growth.

Timeline views should be higher this quarter. Looking back, there were a number of big events that should have driven users to log in and check their tweets. In the first quarter, there was the Super Bowl, the Academy Awards, the Winter Olympics and the NCAA College Basketball Tournament.

Investors will also be watching the number of monthly active users (MAU). Last quarter, the company reported 241 million MAUs, up 30% year-over-year. Because of all those events during the quarter, I think most investors are expecting at least 255 million MAUs.

Another factor to consider is share lockups. According to the prospectus, on May 6, a 365-million share lock up will expire, which will send Twitter's share count to something over 700 million. That's a lot of shares to digest and the flood of paper could weigh on the stock price for some time.

While I'm still bullish on Twitter's long-term prospects, I'm staying cautious in the short-term. The momentum bashing seems to be in full swing and if Twitter doesn't blow out the quarter, I can see the shares going lower. The lock up expiration has me worried as well. I'm staying on the sidelines for now.

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