Will Twitter (TWTR) Top Estimates this Earnings Season?

We expect Twitter, Inc. TWTR to beat expectations when it reports third-quarter 2016 results on Oct 27. In the last quarter, it had posted a positive earnings surprise of 26.67%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Twitter is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Twitter has the right combination of the two key components. 

Zacks ESP: The company has an Earnings ESP of +6.67%. This is because the Most Accurate estimate stands at a loss of 14 cents while the Zacks Consensus Estimate is pegged at a loss of 15 cents.

Zacks Rank: Twitter carries a Zacks Rank #3, which when combined with a positive ESP make us reasonably confident of a beat.

Conversely, the Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.

What is Driving the Better-than-Expected Earnings?

Twitter is making all efforts to monetize the opportunity presented by live video viewing to fight sluggish user and ad revenue growth. Online video is the most lucrative component of digital advertising. Facebook, YouTube and others are trying to grab a pie of this lucrative market. Twitter is now exploring beyond news and the series of live streaming deals are a step in that direction. The company inked streaming deals with sports leagues like NFL, NBA & MLB. It has also brought on board media houses like Bloomberg and Cheddar.

Through live streaming, especially sports, the company hopes to bring more users. At the same time, it intends to help marketers to reach a younger demographic, mostly millennials, through its Amplify program. In the last earning conference call, Twitter said that online video budgets are over $10 billion alone in the U.S and streaming deals will fuel a “long-term shift away from desktop video to premium mobile environments and we believe Twitter is well positioned to benefit from that shift.” 

Reportedly, Twitter also revised its content monetization practices and will now be sharing ad revenues with creators (30:70 split). By bringing more creators to churn out additional content for its platform, the micro blogging site is trying to boost its user base and improve engagement levels.

Twitter’s increasing relevance during major live events such as the upcoming U.S presidential elections, Olympics, Super Bowl, the Oscars, and the Grammys is a major growth catalyst. To make it more user friendly, Twister has been making changes to its platform which includes doing away with calculating media attachments and @names in the tweet count, thus enabling users to express more in tweets.

Twitter has also stepped up its AR/VR efforts with the purchase of a machine learning company, Magic Pony. It also brought on board, Alessandro Sabatelli to head its new AR/VR division formed within Twitter Cortex, which is a group of data and research scientists committed to develop machine learning capabilities to improve Twitter products. Also, Twitter is taking stern measures to curb “trolling” on its platform.

Last month, there had been too many rumors surrounding Twitter’s takeover. Right from Alphabet to Salesforce to Disney, all were speculated to have shown interest in buying the micro blogging site. But there was a twist in its ‘takeover’ tale with most bidders including Alphabet reportedly pulling out of the race. More recently, Japanese bank, Softbank was said to be to be interested in Twitter.

With no potential suitor in sight, Twitter needs to work single handedly to bring about that ever elusive turnaround. We believe that focus on live and user friendly changes could do the trick for Twitter but it is going to be time consuming.

TWITTER INC Price and EPS Surprise

TWITTER INC Price and EPS Surprise | TWITTER INC Quote

Stocks to Consider

Here are a few stocks worth considering that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Amazon.com, Inc. AMZN with an Earnings ESP of +10.47% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mercadolibre, Inc. MELIwith an Earnings ESP of +8.24% and a Zacks Rank #1

Apple Inc. AAPL with an Earnings ESP of +1.21% and a Zacks Rank #2.

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