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Twitter Earnings: High Expectations After Blowout Fourth Quarter

By Daniel Sparks - Apr 12, 2018 at 5:23PM

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Can the company maintain its strong momentum after returning to growth?

Twitter's (TWTR -3.65%) fourth quarter was impressive by just about every measure. Not only did the social network report its first-ever quarterly profit, but it surprised investors with a return to revenue growth. Shares surged after the report was released, and the stock remains up about 8% since.

With such a strong quarter behind it and a more-than-100% gain in Twitter's stock price over the past 12 months, the pressure is on when the social network reports its first-quarter results. Can Twitter deliver?

Ahead of Twitter's Q1 earnings report on April 25, here's what investors should watch.

A businessman using his smartphone in the back of a taxi cab.

Image source: Getty Images.

Expect more strong growth

In Twitter's fourth quarter, the company reported revenue and EPS of $732 million and $0.12, respectively. These metrics compared to revenue of $717 million and a per-share loss of $0.23 in the year-ago quarter. Twitter's non-GAAP EPS increased 73%, from $0.11 in the year-ago quarter to $0.19 in the fourth quarter of 2017.

Twitter's 2% year-over-year revenue growth for its fourth quarter beat consensus analyst estimates for a 4% year-over-year decline. It was also a notable acceleration compared to Twitter's 4% year-over-year revenue decline in Q3.

But analysts aren't as conservative about Twitter's prospects this time. On average, analysts expect first-quarter revenue of $605 million, up 10.4% year over year.

While analysts' expectations for 10% revenue growth in Q1 might seem too bullish at first glance, there are several reasons this consensus estimate is reasonable. First of all, the company's revenue momentum in Q4 would have been better if it hadn't fully deprecated its direct response advertising product, TellApart, by the fourth quarter. When excluding TellApart revenue from the year-ago period, Twitter's total fourth-quarter revenue was actually up 8% year over year. In addition, the company's return to growth hasn't been haphazard, but rather reflects broad-based catalysts across all major products and geographies, which makes continued momentum more predictable.

Watch Twitter's user metrics

Beyond Twitter's financial figures, investors should check in on the social network's user metrics for the quarter -- namely, Twitter's monthly and daily active users and its growth in ad product engagements.

In Twitter's fourth quarter, monthly and daily active users were up 4% and 12% year over year, respectively. Twitter's growth in daily active users has been a particularly strong area for the company recently, with daily active users growing by double-digit year-over-year rates for five quarters in a row. Investors should look for similar growth rates for these metrics in Q1.

To check on the health of Twitter's ad products, investors should look for more strong growth in ad engagements. In Twitter's fourth quarter, ad engagements were up 75% year over year.

Investors should also watch for Twitter's recent trend of more moderate declines in cost per engagement (the cost advertisers have to pay per engagement) to continue. CPEs decreased 42% year over year in Q4 -- a smaller drop than the 63%, 53%, and 54% year-over-year declines for CPEs in the first three quarters of 2017. This more moderate decrease reflected "both stronger advertiser demand and stabilizing video prices," Twitter management said.

Twitter reports its first-quarter results before market open on Wednesday, April 25.

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