Social-networking company Twitter (TWTR -0.81%) reports fourth-quarter results next Wednesday, but don't expect the company to live up to Facebook's (META -2.64%) recent expectation-crushing quarter that sent shares soaring about 15% the following trading day. A recent exodus of key executives may signal a shaky start to the company's plans to reinvigorate its slowing user growth.
Twitter's earnings release comes at an important time. With Twitter co-founder Jack Dorsey returning as CEO late last year, investors are hoping the returning visionary can help the company in its struggle to transform itself into a platform that appeals to a wider audience. Investors will get a glimpse into whether or not Dorsey's return, so far, is improving user growth when Twitter reports results next week. Here are three key metrics to watch when the company announces fourth-quarter earnings.
Revenue: Analysts, on average, are expecting Twitter to report revenue of about $710 million for its fourth quarter. This would represent 48% growth compared to the year-ago quarter.
These expectations seem both realistic and conservative, considering that Twitter guided for revenue of $695 million to $710 million for the quarter and the company has a history of conservative guidance.
Advertising revenue growth: Investors will likely pay particularly close attention to the company's year-over-year growth in advertising for the quarter, as Facebook set a huge precedent for Twitter when the larger social network reported results last week.
Facebook's advertising revenue for Q4 increased 57% from the year-ago quarter. While the growth rate itself was impressive, what was most notable was the extent of the acceleration in this growth rate compared to Q3. Facebook's advertising revenue in the prior quarter increased a still-impressive, albeit notably slower, 45% over the year-ago quarter.
Can Twitter, too, impress when it comes to advertising revenue growth?
Twitter's advertising revenue grew by 60% compared to the year-ago quarter. Given the high level of this recent growth, it's probably not realistic to expect the company to maintain this same rate for Q4, but investors should at least look for year-over-year growth in advertising revenue in excess of 50%
Users: Twitter's monthly active user count, of course, will be one of the main focuses when Twitter reports results. Following Twitter's unimpressive 1% sequential growth in monthly active users in Q3, expectations aren't very high.
But investors may be hoping for a slight improvement in the sequential user growth rate.
The company's launch of its Moments product, a Twitter feature that is supposed to help users discover trending content, was supposed to be one of Twitter's first big moves to begin to transform the service into one that appeals to a mass-market audience. And Twitter launched this product in early October, with more than half of the quarter left.
For Twitter to report sequential growth in monthly active users of 1% to 2% in Q4, the company would need to report around 323 million to 326 million monthly active users.
Stay tuned at The Motley Fool for more coverage of Twitter stock ahead of earnings next week, as well as for a Foolish look at the company's fourth-quarter performance after the numbers are made public on Wednesday.