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Mark Your Calendar for Twitter, Inc. Earnings

By Daniel Sparks - Jan 22, 2016 at 2:15PM

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Can Twitter calm market concerns about the company's waning user growth?

Earnings season is here. Reports from tech companies are just about in full swing and now Twitter (TWTR 0.73%) has a date for its earnings report: Feb. 10. While Twitter may not be the behemoth Apple and Facebook, which report next week,are, the report is likely to garner considerable attention. It follows the stock's enormous decline of about 51% during the past 12 months -- a sell-off that has beat the stock down to about $8 below its IPO price of $26. 


Will Twitter's fourth-quarter report next month moderate investor concerns about the company's future?

The expectations
Despite the stock's ugly decline, investors haven't relaxed their expectations for the company's growth. Analysts, on average, expect Twitter's revenue to jump 48% from the year-ago quarter to $710 million. This would also represent a meaningful increase from the company's revenue in its prior quarter of $569 million. 

Analysts' expectations for the company's fourth-quarter revenue are at the high end of Twitter's guidance for the quarter. The company said in its Q3 earnings release that it expected fourth-quarter revenue to be in the range of $695 million to $710 million.

Rising costs are expected to weigh on the company's profitability during the quarter. The consensus analyst estimate for Twitter's non-GAAP EPS is $0.12 -- equal to its EPS the company reported in the year-ago quarter. 

Beyond revenue and EPS, investors will also hone in on the company's guidance for the coming year. With Twitter co-founder Jack Dorsey recently returning to the company as CEO, investors will be looking for signs that the visionary's return to the company also brings with it some optimistic expectations. And investors may get their first preview of how the company views its potential under Dorsey when Twitter shares its guidance for the full year in its fourth-quarter earnings release.

Twitter CEO Jack Dorsey. Image source: Twitter.

What revenue guidance for the full year could signal confidence in the company's new CEO? With Twitter's full-year revenue for 2015 likely to be around $2.3 billion, the company would need to guide for a range of around $3 billion to $3.3 billion in order to prove its growth prospects aren't dwindling. Revenue at these levels in 2016 would represent about 30% to 43% year-over-year growth from the company's expected 2015 revenue.

While a range of 30% to 43% revenue growth in 2016 would be a notable deceleration from the 48% year-over-year growth expected in the fourth quarter of 2015, investors should realize two things: First, deceleration is natural when a company is growing as fast as Twitter. And second, growth companies typically bake in a fair amount of conservatism into the low end of guidance ranges.

Users, users, users
Of course, the major focus when Twitter reports results will be the same as it was during the past several quarters: user growth. Investors will tune in both on the company's reported user growth during the quarter and on updates to the company's expectations for user growth going forward.

During Q3, Twitter's 1% sequential user growth continued to concern investors as the market contemplates whether the service can transform itself into one that appeals to the masses.

Investors can tune into the company's results after market close on Wednesday, Feb. 10.

Daniel Sparks owns shares of AAPL. The Motley Fool owns shares of and recommends AAPL, FB, TWTR. 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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