Social media stock Twitter (NYSE:TWTR) has just put a date to its third-quarter earnings release. On Thursday, Oct. 27, the company will give investors an update on the quarter. The quarter's results will be particularly important because they follow a significant recent rebound in Twitter's stock price.
In the last three months, Twitter stock has rebounded about 44%. So investors will be looking for the stock to live up to its higher valuation when the company reports third-quarter results.
When the earnings release goes live later this month, here's what to look for.
Twitter's revenue growth will likely be a key focus when the social media company reports third-quarter results. When Twitter provided guidance for Q3 in its second-quarter earnings release, the forecast was significantly below analyst expectations and implied a sharp deceleration in year-over-year revenue growth. The company said it expected third-quarter revenue in the range of $590 to $610 million, while analysts had been anticipating revenue of $681 million. The midpoint of this guidance range implied just 4.6% year-over-year growth -- down from 20% year-over-year growth in the prior quarter, 36% growth two quarters ago, and 56% three quarters ago.
With Twitter's revenue growth expected to decelerate this rapidly, you can bet investors will be interested in what actual revenue for the quarter will be. Investors should look for Twitter to report actual revenue near the high end of this bleak guidance range, close to $610 million.
Expectations for the company's profits are just as uninspiring. For the company's EPS, analysts are expecting Twitter to report a non-GAAP EPS of $0.09, on average. This is down from $0.13 in the prior quarter and down from $0.10 in the year-ago quarter.
Competing with Facebook is difficult
Twitter's weak revenue growth environment in Q3 seems to suggest that the recent success of competitor Facebook (NASDAQ:FB) has been taking a toll on Twitter.
In its second-quarter earnings release, Twitter cited "increased competition for social marketing budgets" as a key challenge for the company, and said it needed to deliver higher performing ad products and, more specifically, improved ad products for marketers' mobile video budgets. Just as Twitter was pointing to this increased competition, Facebook's ad revenue soared 63% during the same quarter, and the company cited its video ad products as a boon for its business.
"Our community and business had another good quarter," said Facebook founder and CEO Mark Zuckerberg in the company's second-quarter earnings release. "We're particularly pleased with our progress in video as we move toward a world where video is at the heart of all our services."
If Facebook really is eating into Twitter's opportunity, this is an unfortunate narrative for Twitter, since Facebook's long track record of consistently deploying effective ad products at a much faster rate than Twitter is only improving.
Investors should read between the lines when Twitter reports results to see if Facebook's success is still negatively affecting the company.
Finally, investors should see if Twitter CEO Jack Dorsey addresses any speculation regarding a potential buyout. In late September, buyout rumors sent shares soaring about 20% in a single trading day when CNBC reported Twitter was receiving "expressions of interest from several technology and media companies and may receive a formal bid shortly." Alphabet and Salesforce.com were two of the "potential suitors," CNBC said.
And now WSJ is reporting that Twitter is "expected to field bids this week," sending shares up 6% on Wednesday at the time of this writing.
Overall, investors should look for signs of a turnaround when Twitter reports third-quarter results and a confirmation of whether all this buyout speculation actually means anything.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Facebook, and Twitter. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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