What Will Twitter, Inc.'s Guidance Look Like?

Twitter (TWTR) investors will be watching a range of metrics -- user growth in particular -- when the social network reports fourth-quarter results on Wednesday after market close. But beyond metrics for the current quarter, investors may also hone in on management's guidance for the current quarter and the full year. Here's what investors can expect. 

Twitter headquarters. Image source: Twitter.

The expectations
Here's what analysts are expecting for Twitter's first quarter and for the full year year.

Analysts expectations for first-quarter revenue implies 44% year-over-year growth. And expectations for the company's $3.1 billion in total 2016 revenue represents 40% year-over-year growth compared to Twitter's 2015 revenue if its fourth-quarter results are in line with management's expectations for $695 to $710 million for the quarter.

First-quarter non-GAAP EPS, at the level of analyst expectations, would be up slightly from non-GAAP EPS of $0.07 in the year-ago quarter. And full-year 2016 non-GAAP EPS at this level represents about 57% year-over-year growth compared to expected full-year EPS for 2016, with analysts clearly expecting the company to benefit from some operating leverage as revenue grows during the year.

Given that Twitter reports its guidance in ranges, what guidance ranges would live up to these expectations?

When the company reports fourth-quarter results on Wednesday, investors are likely expecting Twitter to guide for first-quarter revenue and non-GAAP EPS ranges of approximately $620 million to $640 million, and $0.05 to $0.10. For the full year, investors are likely hoping for revenue and non-GAAP EPS guidance of $3 billion to $3.2 billion and $0.45 to $0.65, respectively. In other words, investors may be hoping the midpoint in Twitter's guidance ranges are in line with analyst expectations.

Are analyst expectations realistic?
Analyst expectations for the first quarter and the full year basically represent natural step ups from the company's current growth trends, allowing for continued deceleration -- though the expectations seem to be on the conservative side.

Expectations for the first quarter seem particularly conservative. Growing revenue just 44%, year over year in its first quarter would be a huge deceleration from the 58% year-over-year growth reported in the company's third quarter. However, the deceleration doesn't seem as sharp when compared to the 48% year-over-year revenue growth analysts are expecting for Twitter's fourth quarter.

In support of analysts' expectations, it's better to err on the side of conservatism in forward-looking projections. The consensus analyst estimates for Twitter's first quarter and the full year are reasonable, and should serve as a decent barometer for investors to judge the guidance Twitter provides on Wednesday against.

Whatever Twitter's guidance looks like for the current quarter and the full year, it's likely that the company's user growth for the quarter, along with any commentary on where Twitter expects user growth to trend during the year, could take precedence in directing sentiment for the stock when it reports results. With sequential user growth of just 1% in the company's monthly active users during the last quarter, and with CEO Jack Dorsey acknowledging the decelerating user growth has been disappointing, investors will likely put user growth at the forefront of any analysis when the company reports.

Chart source: Twitter.

An emphasis on the company's user growth is fair. Consider Twitter's 320 million in monthly active users, and its 1% sequential user growth in its most-recent quarter compared to Facebook's 1.6 billion monthly active users and its 3% sequential growth in its most-recent quarter. With these comparisons in mind, it's easy to see why investors are concerned.

While Twitter's revenue may be able to grow in spite of user growth for some time, the social network will eventually need to prove to investors it can continue to grow its user base if the company wants to make the case that its business has plenty of growth potential.