Can Twitter (TWTR) Stock Deliver On Earnings?

Twitter TWTR stock

Shares of Twitter (NYSE:TWTR) fell more than 1 percent to $18.19 in early trade on Friday [pre-market/Tuesday: $18.59 (-0.32%)] following a bearish call from Raymond James’ Aaron Kessler, who in a research note to investors cut his rating on the company’s stock from ‘Outperform’ to ‘Market Perform’, writing that recent advertising channel checks indicate consensus revenue estimates for Twitter’s third-quarter “could prove aggressive.” Kessler warns that despite ongoing improvements aimed at simplifying the platform and jump-starting slowing user growth, Twitter still continues to struggle as investors question the company’s way forward. Furthermore, Kessler said the embattled social media site could fail to live up to second-quarter consensus estimates.

Twitter is set to announce its 2Q16 earnings after the market close on Tuesday, July 26. Analysts expect the San Francisco-based company to report earnings per share of $0.10 and revenue of $606.37 million. That would be $0.05 lower the $0.15 per share posted last quarter, and $0.03 higher the $0.07 posted in the 2Q15. Revenue is projected to be $61.37 million higher than the $545 million posted in the same period a year earlier. Meanwhile, EarningsWhisper.com reports a whisper number of $0.15 per share.

As a quick reminder, Twitter’s first-quarter 2016 EPS came in $0.05 better than the Street’s consensus estimate. Revenues increased 36.47% year-over-year to $595 million versus the $607.84 million consensus.

Kessler also removed his $19 price target on Twitter shares, saying he sees price-per-share upside potential to $24 with downside risk to $13.

Goldman Sachs’ (NYSE:GS) Heath Terry also weighed in on Twitter earlier this month, suggesting that while there is still “significant value” in the social media’s user base, content and interaction data, the company’s efforts at product improvement “have yet to have an impact” on the company’s business. Goldman currently has a ‘Buy’ rating and a $22 price target on Twitter.

Shares of Twitter have advanced 12.68% in the last 4 weeks, and 5.03% in the past three months. Over the past 5 trading sessions the stock has gained 2.39%. On a year-over-year basis however, the picture isn’t as green given the fact the shares have plunged  by nearly 50%, compared with a gain of 2% in the S&P 500.

Currently there are 9 analysts that rate TWTR a ‘Buy’, 25 rate it a ‘Hold’. Three analysts rate it a ‘Sell’. TWTR has a median Street price target of $18.00 with a high target of $32.00.

With nearly $2.40 billion in annual revenue, Twitter has a market cap of more than $12.6 billion, and a stock trading at 28x its forward price/earnings ratio.

The Bottom Line on Twitter Stock

Twitter’s stock has been climbing since bottoming out at $13.77 on May 24, but many attribute that to Microsoft’s (NASDAQ:MSFT) $26.2 billion acquisition of LinkedIn (NYSE:LNKD). The thinking goes that big tech names like Google-parent Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:FB), and Apple (NASDAQ:AAPL) are the most likely buyers who could stand to gain from the platform’s 300 million users. Given the similarities between LinkedIn and Twitter, it’s easy to see why stockholders would be betting on a such a move.

That said however, nothing can change the fact that fundamentally, there are still problems at Twitter. The company continues to face major obstacles in terms of declining ad sales, an eroding stock price, an arguably inflated stock multiple, stagnant user growth while still losing loads of money—$438 million t-12 net income available to common and an accumulated deficit of $1.6 billion throughout its lifetime. Unless Twitter pulls some kind of miracle off its hat when Q2 earnings are announced today, that trend will continue to further erode its stock price.

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