Earnings preview: Will Twitter’s share price fly after Q2 results?

Twitter’s [TWTR] share price has gained by 14.6% from the start of the year to 21 July. After a period of volatility following the market crash in March the microblogging company edged its way back to around $40, closing at $$37.01 on 21 July.

Twitter’s share price has been hovering at this range for nearly two years, but has repeatedly failed to break out to anywhere near the $69 high it hit less than two months after its 2013 IPO.

More recently, Twitter’s share price had appeared to be on an upward trend. It gained more than 7% in 24 hours to hit $35.41 on 8 July on the back of reports that it might be launching a subscription service, before this was stalled by a security breach, in which high-profile US accounts, including Barack Obama’s, were hacked.

Could Q1 earnings report, due on 23 July, push Twitter’s share price to new highs?

Twitter's positive results

Twitter has beat expectations for the past two quarters and proven that it can deliver strong results in some segments, but it has not experienced a significant uplift in its share price as a result.

In its Q4 2019 earnings — reported 6 February — the company showed its biggest quarterly user growth ever. It reported 152 million monetizable daily active users (mDAUs) versus the 147.5 million expected by FactSet and StreetAccount.

Revenue arrived at $1.01bn, compared to the $996.7m expected by Refinitiv. But, earnings per share were less impressive, arriving at $0.25 versus the $0.29 Refinitiv expected.

This was before COVID-19 struck, sending twitter’s share price tumbling by 44% between 20 February and 18 March. But when Twitter reported Q1 earnings on 30 April, in the midst of the pandemic, results were strong.

For Q1, 2020, Twitter’s EPS was $0.11. it reported revenue of $808m and 166 million mDAUs. This beat analyst expectations — not revised after the pandemic — of EPS of $0.10, revenues of $776m, according to Refinitiv, and 164 million mDAUs, based on StreetAccount estimates, according to CNBC.

What to expect in Q2?

Despite the strong Q1 figures, Twitter’s outlook for the year was not optimistic, as advertising revenue rapidly declined in the midst of the pandemic. In a letter to shareholders, Twitter said that ad revenue had dived 27% year-on-year between 11 and 31 March.

The unpredictability of what might continue to happen to Twitter&rsquo s revenues has meant the company did not report guidance for Q2 and has suspended full-year guidance.

It is likely that the company has continued to engage large swathes of users during the pandemic, and that this will be reflected in Q2 figures. However, if revenue has taken a beating — as Twitter has warned it might — then investors are unlikely to be happy with the upcoming results.

Another big factor that will drive share price movement, up or down, will be whether or not Twitter is able to give a more accurate outlook for the remainder of the year.

What do the analysts think?

Analysts remain cautious about Twitter.

The concerns will likely not have been assuaged by Twitter’s recent security breach in which 130 accounts were targeted and 45 — including high-profile users such as Barack Obama and Elon Musk — were taken over by hackers. Exactly what happened is still being investigated.

“The breach, which appears to be Twitter’s fault rather than the account owners’, will likely lead to regulatory scrutiny and the need for incremental investment into the company’s security infrastructure and protocols,” John Egbert, an analyst at Stifel, said in a note to clients.

Egbert has a hold rating on Twitter, and a lower-end share price target on the stock of $26. He suggested that this breach could “create a lengthy overhang on the stock”.

Out of 39 analysts polled by CNN, 29 rate the company a hold, six consider it a buy and four a sell. Out of 34 analysts offering 12-month share price forecasts on the stock, the median price comes up at $32 — 14.8% lower than its closing price on 20 July.