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Twitter Stock Has a Lot to Prove on Wednesday

By Rick Munarriz - Updated Apr 24, 2017 at 8:11AM

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The social-media giant has a lot riding on this week's quarterly report.

The next chapter in the historically unsatisfying Twitter (TWTR -0.56%) saga will play out this week, as the former social-media darling puts out fresh financials. Twitter will announce its first-quarter results after Wednesday's market close.

Everyone's bracing for another sluggish performance. Analysts see revenue of $511.9 million for the quarter, 14% below the prior year's showing. None of the 30 major Wall Street pros putting out forecasts is holding out for growth, as the most upbeat analyst sees an 8% top-line slide. 

The news isn't going to get any better on the bottom line. Analysts see a profit of $0.01 a share, well short of the $0.15 a share it rang up a year earlier. Again, even the most optimistic of Wall Street pros sees a sharp year-over-year decline in earnings -- with some holding out for red ink.

A screen shot of Twitter with new ad support changes.

Image source: Twitter.

Social disorder

Usage growth has stalled at Twitter. The platform attracted 319 million monthly active users during the fourth quarter, just ahead of the 317 million monthly active accounts on Twitter a year earlier. The silver lining in the base stagnancy is that engagement is improving. If we switch from monthly active users to daily ones, we see 11% growth. The daily active usage trend actually accelerated through 2016, rising 3%, 5%, 7%, and then 11% through the year's four quarters, respectively. Investors will want to gauge how monthly and daily active users are trending in Wednesday afternoon's report. 

The big shocker in Twitter's most recent quarterly report was that ad revenue declined. Higher engagement on a steady user base should result in more potential ad revenue. Marketers are earmarking more of their budgets for digital advertising and generally willing to pay more to reach niche audiences. Unfortunately, things aren't playing out that way for Twitter. Revenue climbed 1% in Twitter's fourth quarter, but ad revenue declined. 

Twitter didn't put out top-line guidance when it posted quarterly results in early February, but it did point out that it expects advertising revenue to once again lag its audience growth. Twitter's ominous warning and the way things have been trending are why nobody expects revenue to inch higher in Wednesday's report. The one-time dot-com speedster is in a rut, and it may take some time before we see if its push for live video content, new ad formats, and the seemingly impossible task of patrolling for trolling and harassment will pay off. Between all of the moving parts at Twitter and the buyout speculation that never seems to truly go away, there's a lot of drama heading into this week's report. Twitter's fundamentals may not be going anywhere, but the stock itself has plenty of ups and downs. 

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