Twitter's (TWTR) third quarter was a breath of fresh air for investors looking for the company to start showing some meaningful signs of a turnaround. Not only did Twitter's year-over-year revenue decline moderate, but the company also took a step closer to GAAP profitability. Management forecast fourth-quarter adjusted earnings before interest, taxes, and depreciation (EBITDA) to be between $220 million and $240 million -- a range that could make Twitter profitable on a GAAP basis if the company's EBITDA is at the high end.
When Twitter reports its fourth-quarter results early next month, investors will look for further traction in the company's turnaround. More specifically, investors will be looking for signs that Twitter can return to growth soon.
Ahead of Twitter's fourth-quarter results, here's an overview of some of the most important areas for investors to watch.
For Twitter's third quarter, revenue was down 4.3% year over year. But as management was careful to point out, this was a significant improvement from the 8% year-over-year decline in revenue Twitter reported in the first quarter of 2017, and it was also better than the 5% decline in revenue Twitter reported in Q2.
"We continued to make progress toward a return to revenue growth in Q3," Twitter management said, referencing its moderating year-over-year declines.
In Twitter's fourth quarter, it's unlikely the social network will return to revenue growth yet. But investors should look for signs that Twitter's continuing to make progress toward returning to growth. Investors should look for evidence in either a continued trend in moderating year-over-year revenue declines, or a specific target of when management expects the company to return to growth -- or both.
In its third-quarter shareholder letter, Twitter said it's aiming for improved execution from its sales and operating teams, as well as ongoing product improvements in its core ad products to help the company return to revenue growth.
On average, analysts are expecting revenue to decline 4.3% year over year in Q4, to $686 million. But I'll be looking for revenue to decline only 4% or less, providing more concrete evidence of a turnaround.
For any social network, user trends are important. After all, user engagement is an important metric for marketers considering spending money on ads for the platform.
For Twitter's third quarter, monthly active users climbed 4% year over year, to a record 330 million. On a sequential basis, monthly active users were up about 1%. Daily active user growth has been particularly strong. The important metric saw 14% year-over-year growth in Q3, marking the fourth quarter in a row of double-digit growth.
Investors should look for similar user trends in Twitter's fourth quarter.
With management teasing the possibility of a GAAP profit in Q4, you can bet investors will be paying close attention to the quarter's profitability.
In Twitter's third quarter, non-GAAP earnings per share (EPS) was $0.10 -- an improvement from $0.09 in the year-ago quarter. But GAAP profitability saw an even bigger improvement: On a GAAP basis, Twitter lost $0.03 per share in Q3 compared to a loss of $0.15 in the year-ago quarter.
In light of management's statement about possibly achieving GAAP profitability in Q4, investors will be looking for exactly this. If it's not achieved, investors should at least look for Twitter to come close to breakeven on a GAAP basis.
Twitter reports its fourth-quarter results before market open on Feb. 8.