2 Warning Signs That Twitter Could Fall on Earnings This Week

Twitter (NYSE: TWTR  ) is set to report its fiscal 2014 first-quarter earnings after the market closes on Tuesday. And investors are hoping for a strong quarter to turn around recent price declines in the stock. To be sure, shares of the social media stock have fallen nearly 30% since Twitter's fourth-quarter earnings release in February. This will be Twitter's second earnings announcement as a publicly traded company. However, it might not be as positive as many investors hope, particularly as the social media giant continues to struggle with slowing user growth and increased market volatility.

Stagnant user growth
One indication that Twitter could underperform expectations for its first quarter is the recent decline in its user growth. Unlike rival Facebook (NASDAQ: FB  ) , it seems Twitter is having trouble appealing to the masses. Twitter added just 9 million monthly active users worldwide in its last quarter for a total 241 million. It is worrisome to see growth in Twitter's monthly active users stalling so soon, particularly as Facebook now has global monthly active users to the tune of 1.28 billion.

The number of inactive Twitter accounts is also on the rise. While the company defines monthly active users as users that login at least once a month, more than half of these so-called MAUs never send a single tweet or message. When it reports tomorrow, analysts will want to see proof that Twitter's user base is more engaged than it has been in previous quarters.

Unfortunately, how people use the service isn't something that changes over night and Twitter may need to tweak its platform a bit before we see a meaningful turnaround in how users interact on the social site. Moreover, research company eMarketer expects Twitter's growth woes to continue. By next year, its growth is estimated to fall from 19.4% in 2013 to just 10% in 2015, according to eMarketer.

A moody market for Internet and tech stocks
Despite the recent pullback in shares of Twitter, the stock still trades at a lofty premium at its current price of nearly $40.00 per share. The price-to-sales ratio gives us the best insight into the company's valuation today and with a P/S of 35.24, it is one of the highest in the Internet and services industry. For comparison, Facebook currently boasts a P/S ratio of 16.47.

On top of this, it has been a tough month for technology stocks. Facebook, Microsoft, and Amazon.com all reported better-than-expected earnings last week, yet the market punished them by pushing their respective stocks lower regardless of the results. As Wedbush analyst Shyam Patil points out, "High growth, high beta stocks are not being rewarded for good results right now."

This market trend seems to have spilled over into this week, with shares of Twitter and its Internet peers all trading down today. Therefore, shares of Twitter could continue to fall even if the company is somehow able to surprise investors with a reversal of user growth and engagement when it reports tomorrow. Analysts are looking for Twitter to post a loss of $0.03 per share, on revenue of $241.5 million in the quarter. Investors may want to steer clear of this name for now because of these near-term headwinds.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2933277, ~/Articles/ArticleHandler.aspx, 12/22/2014 2:41:50 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement