What To Look For From Twitter On Tuesday

Apr.29.14 | About: Twitter, Inc. (TWTR)

Twitter Inc. (NYSE:TWTR) is set to report FQ1 2014 earnings after the market closes on Tuesday, April 29th. To describe the expectations for Twitter in 140 characters or less, revenue expectations are higher than ever before while earnings are predicted to slip back into the red. Wall Street expects Twitter to follow Facebook (NASDAQ:FB) and report growing advertisement revenue. But last quarter Twitter struggled to grow its user base by as much as analysts has hoped for. Twitter's core metrics will be important non-financial numbers to watch in the report. Here's what investors expect on Tuesday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.


(Click here to see Estimates and Interactive Features for Twitter)

The current Wall Street consensus expectation is for Twitter to report -3cc EPS and $240.0M revenue while the current Estimize.com consensus from 42 Buy Side and Independent contributing analysts is -1c EPS and $246.98M in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Twitter to beat Wall Street's expectations by a considerable margin.

Since Twitter had its IPO, the consensus from Estimize.com has been more accurate than Wall Street in forecasting Twitter's EPS and revenue in both quarters. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a moderate differential between the two groups' expectations on Twitter's earnings.

Click to enlarge

The distribution of estimates published by analysts on the Estimize.com platform range from -6c to 5c EPS and from $210.5M to $295.24M in revenues. This quarter we're seeing a large range of estimates on Twitter.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signals less agreement in the market, which could mean greater volatility post earnings.

Click to enlarge

This quarter the Wall Street EPS consensus increased from -4c to -3c while the Estimize consensus increased from -2c to -1c. Meanwhile Wall Street raised its revenue consensus from $213.55M to $240.00M while the Estimize community raised its projection from $228.15M to $246.98M. Timeliness is correlated with accuracy and upward analyst revisions going into the report are often a bullish indicator.

Click to enlarge

The analyst with the highest estimate confidence rating this quarter is TechStockRadar who projects 1c EPS and $245.50M in revenue. TechStockRadar is ranked 14th overall among over 4,300 contributing analysts. Over the past 2 years TechStockRadar has been more accurate than Wall Street in forecasting EPS and revenue an impressive 67% and 63% of the time respectively throughout 464 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case TechStockRadar is making a bullish call expecting Twitter to remain profitable this quarter and report revenue between the consensuses from Wall Street and Estimize.

On Tuesday, Twitter is expected to return to reporting a small quarterly loss. Optimists and investors will be hoping that Twitter can follow suit with Facebook and report strong advertising revenue, especially on mobile. Last quarter Twitter reported weaker user growth than expected and the active monthly users number and revenue will both be important to watch.

Disclosure: No positions