After a big sell-off for the overall stock market recently, earnings season might offer opportunistic investors a way to identify some solid companies selling at more attractive prices. The tech sector especially will be worth watching closely; tech stocks have been hit particularly hard recently, with shares of many of America's most dominant tech companies falling by double digits since Sept. 1.
Big-name tech stocks Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Twitter (NYSE:TWTR) are two worth watching this month. These stocks are down about 10% and 13%, respectively, since Sept. 1. Ahead of each of these companies' third-quarter earnings releases later this month, here's a quick overview of some of the key items investors will want to watch when they report their results.
Online search giant Alphabet reports its third-quarter results on Oct. 25. In the company's most recent quarter, Alphabet reported strong revenue and adjusted earnings-per-share growth. Revenue increased 26% year over year, or 23% in constant currency. Earnings per share, adjusted to exclude the impact of a European Commission fine, jumped 32% year over year.
While investors should look for more strong momentum in Alphabet's overall revenue and its earnings per share, a key area to focus on will be Google's "Other" segment. This segment, which accounts for Alphabet's revenue from cloud, hardware, and the Android app store, has been on fire recently. Revenue from the segment rose 37% year over year in Alphabet's third quarter.
Look for similarly strong growth from the Google Other segment in Q3.
Twitter investors have been spoiled recently by stellar results. Revenue growth has accelerated, and the company has swung from consistently reporting losses to achieving a meaningful bottom line.
Revenue increased 24% year over year in Twitter's second quarter. This compares to 21% and 2% revenue growth in its first quarter of 2018 and fourth quarter of 2017, respectively. Meanwhile, Twitter reported second-quarter net income of $100 million, up from a $117 million loss in the year-ago quarter. Q2 was Twitter's third consecutive quarter of GAAP profitability.
For Twitter's third quarter, investors should look for more strong revenue growth and further year-over-year improvement in profitability.
Looking beyond Twitter's financials, a key area to watch will be Twitter's user metrics. Monthly active users in Twitter's most recent quarter actually declined by 1 million, falling from 336 million in the first quarter of 2018 to 335 million in Q2. The decline came as the company was making an aggressive effort to delete bad accounts. Another push to remove bad accounts is expected to also weigh on Twitter's monthly active users in Q3.
But the most important user metric to watch is likely Twitter's year-over-year growth in daily active users, which increased 11% year over year in Q2. Can Twitter keep up this strong momentum for its daily active users?
Like Alphabet, Twitter also reports its third-quarter results on Oct. 25.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Twitter. The Motley Fool has a disclosure policy.