Twitter Earnings: What to Look For

Key Takeaways

  • Analysts expect adjusted EPS of $0.09 vs. $0.37 in Q1 2019.
  • Monetizable daily active users (mDAUs) are expected to rise.
  • COVID-19 expected to hurt sales and earnings.

Social-media company Twitter Inc. (TWTR), which has struggled with falling profits in recent quarters, faces drastic earning declines ahead as the coronavirus pandemic shrinks the global economy. While Twitter's traffic may rise as millions of people stay home amid government lockdowns, the economy is likely to force marketers to cut ad spending, the primary source of the company's revenue. Investors will be looking for signs of the initial impact of the downturn on Twitter's business when the company reports earnings on April 30, 2020 for Q1 2020.  Analysts expect adjusted earnings per share (EPS) to plunge on a modest drop in revenue.

Investors are likely to focus closely on a key Twitter metric in the Q1 report, which is monetizable daily active users, or mDAUs. The metric measures the number of users accessing Twitter platforms that show ads. Analysts expect this metric to rise.

Twitter management has indicated the company's financial outlook is highly uncertain. It already has withdrawn its previously issued forward guidance for the quarter. Twitter said it expects falling revenue and a GAAP operating loss. However, the company also said that the rapidly evolving nature of the pandemic makes it hard to predict results accurately, according to a statement released in late March.

Those dim forecasts didn't help the company's stock, which was already underperforming before being hammered along with the rest of the market as fears over the spread of COVID-19 mounted. The stock has recovered somewhat, but is still lagging the broader market with a total return of -17.3% over the past 12 months compared to the S&P 500's total return of -3.7%.

Shares of Twitter rose immediately after the company posted Q4 2019 results that showed revenue grew 10.8% year over year (YOY) to a record high that surpassed $1 billion for the first time. However, adjusted EPS fell far below analysts' estimates and was 21.2% lower than the same quarter a year ago, marking the second consecutive quarter of declines. 

Twitter also posted a 17.5% decline in adjusted EPS for Q3 2019, which was the first decline since Q2 2017. Revenue rose just 8.7%, the slowest pace since Q4 2017. The company noted that software glitches related to some of its advertising tools contributed to "greater-than-expected seasonality" in its ad business. The stock plummeted more than 20% following the report.

The company's performance may worsen with the slumping economy. Analysts expect adjusted EPS for Q1 2020 to decline a dramatic 76.1% compared to the same quarter a year ago. Revenue is forecast to fall 1.2%, marking the first sales decline since Q3 2017. For all of 2020, analysts estimate adjusted EPS will plunge 80.1% as revenue drops 3.6%, the worst revenue growth number in at least 6 years.

Twitter Key Metrics
 Estimate for Q1 2020 (FY)Actual for Q1 2019 (FY)Actual for Q1 2018 (FY)
Adjusted Earnings Per Share ($)0.090.370.16
Revenue ($M)777.8786.9664.9
Monetizable Daily Active Users (M)163.0134.0120.0

Source: Visible Alpha

The one bit of good news may be that analysts expect rising mDAUs, a metric that tracks the number of users that log in and access Twitter through the company's main website or its applications that display ads. Average mDAU is calculated by summing the total mDAUs for each day of the given period and then dividing that sum by the number of days in that period. It's a metric that potential advertisers can use to gauge user engagement with Twitter's platforms.

The mDAU metric was introduced to replace the previously-used monthly-active-users (MAUs) gauge, which Twitter discontinued after Q1 2019. Twitter says that reporting a monetizable-daily metric will more accurately reflect user engagement for advertisers. But the decision to switch may have been partly motivated by the fact that the company was experiencing consistent declines in average MAUs.  

Twitter reported average mDAU of 152.0 million in Q4 2019 for a YOY rise of 20.6%. That is the fastest pace of growth in at least 15 quarters and analysts are even expecting an uptick in that pace for Q1. The current forecast is for Twitter to post average mDAU of 163.0 million for growth of 21.6% compared to the same quarter a year ago. Increased Internet traffic is likely to further boost that number.

To be sure, it's unclear whether this robust growth of mDAU will have any positive impact on Twitter's numbers in the short term. Even though the metric rose sharply in recent quarters, Twitter's adjusted earnings fell. The same pattern is expected for Q1 FY 2020. Twitter's big challenge is that its revenue and earnings depend heavily on advertising. As result, its earnings may continue to worsen if ad spending plunges, even as the number of Twitter users rises.

Article Sources

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  5. Visible Alpha

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  13. The Verge. "Twitter keeps losing monthly users, so it’s going to stop sharing how many," Accessed April 23, 2020.

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