By Dmitriy Gurkovskiy, Chief Analyst at
RoboMarkets
Facebook (NASDAQ: FB) reported its Q4 2018 earnings on January 30, totally beating the expectations, with the revenue reaching $16.91B against $12.97B last year and the forecast at $16.40B.
Against all negative events involving the social media, the number of everyday and new users is still growing. Upon the report, the stock bounced upward by 11% in a single trading session.
With such a good Facebook report, another social media, Twitter (NASDAQ: TWTR), may beat the expectations, too, in its Q4 report. If the stock jumps the same way, this will be a good earning opportunity.
Twitter's report is due on Feb 7, with the expectations at $868.24M, or $0.25 EPS. Unlike Facebook, Twitters earnings have always beaten the expectations over the last two years.
With Twitter being very much popular among athletes, celebs, and politicians, it was able to pick profits only starting 2017, and that only because of reducing costs and good revenues coming from video ads.
While the financial indicators are improving, the stock is still quite slow in going up. Once the company started receiving profits, it also started to kill fake accounts and bots, which led to fewer active users in Q2 and Q3. The investors' reaction was mixed.
In Q2, it was mostly negative, with the stock losing 20% in a single session, despite the earnings beating the expectations. On Q3, people understood the reason behind the reducing number of users, and the stock jumped by 14%. Still, the investors kept being wary, and the stock price soon got back to the original one.
This time, both financial data and the number of users will be on focus. If both beat the expectations, the stock may not only jump in the short term, but form a longer term uptrend, too.
Twitter is still far behind FB in both terms: Facebook quarterly earnings are $16.91B against $0.758 by Twitter, while the number of active users is 2.7M against 326K per month. This is not quite accurate, as Facebook also includes Instagram and WhatsApp, but even without those media it's far ahead of Twitter. This actually means that Twitter is only starting out and has a wide growth potential.
Suppose, FB is now level 10, while Twitter is only level 1. Both are rising steadily, but every next level is more difficult to overcome, which means FB is bound to hit its ceiling sooner. Meanwhile, if the Twitter management is smart enough to take good decisions, the company has a good chance to realize its potential.
This is of course not that simple as it sounds. Even the strongest data may not push the stock high, if other effects jump in. For instance, Twitter's P/E is now 44.20, against the 26.30 average, which means the stock is well overbought. The profit expectations are also going down, which is another negative issue for the stock.
Thus, when a good earnings report comes out, the stock may jump higher for a short time, but then bounce back. In this light, the investors will be closely monitoring the earnings and new users expectations that the Twitter management will announce.
Technically, the price is near the 200-day SMA, without any clear trend. The range between $26 and $36 formed since August is still here to stay, and may be broken out only once a good report comes in. In the latter case, the price may even test the resistance at $47.
Currently, trading Twitter is somewhat risky. The Sino-US trade war has nothing to do with the company, so if there's any progress here, this will not move the stock up. On the other hand, the P/E is nearly double compared to the sector average, which does not make the long term outlook positive. In addition, the profit expectations are going down.
Twitter stock is ideal for a short term trade, in case the report gives more revenues and active users.
Everyone, however, must understand the risks involved. Whenever the report doesn't beat expectations, the stock will immediately fall back to $26. On the other hand, with the price going even lower, like to $20, one may think of going long. Previously, when the price was near $30 or lower, there was a rise in the volume, which then pushed the stock higher.
Disclaimer
Any predictions contained herein are based on the authors' particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.