After scuffling through a rough patch during the early days of the pandemic, Twitter Inc. has rebounded with a bounce in the digital advertising market and is getting ready for its second $1 billion quarter.
Twitter Inc, which famously booted former President Donald Trump from social media is enjoying a resurgence in digital ad spending that greatly supercharged the quarterly results of Google parent Alphabet Inc. GOOGL, and Facebook Inc. in recent days.
Total worldwide digital ad spending is on track to reach $395.5 billion by the end of 2021, up 16% from 2020, according to researcher eMarketer. Twitter’s total worldwide ad revenue will reach $3.4 billion by the end of 2021, up 24% over last year, eMarketer added, though the company’s share of the market would be a paltry 1%.
“The obvious elephant in the room around forwarding commentary is the potential engagement drop off in 1Q (usually a seasonally strong quarter for DAU net adds) around the recent account purge [of Trump],” Barclays Capital analyst Ross Sandler cautioned, noting a modest estimate of 193.5 million daily active users by FactSet.
Another telltale sign will be if Twitter — like Facebook, Snap Inc., Pinterest Inc., and Unity Software Inc. — warn investors of possible headwinds from Apple Inc.’s forthcoming iOS 14 and its more-restrictive privacy settings on third-party apps like Twitter.
In recent days, the microblogging service has made moves to expand the content. On Thursday, Google Cloud announced a new, multiyear, strategic partnership in which Twitter will move offline analytics, data processing, and machine learning workloads to Google’s Data Cloud.
In late January, Twitter announced it had acquired Revue, a platform that lets people make editorial newsletters. Twitter will take a 5% cut of subscription revenue that users of Revue generate. Twitter also said it had broadened its partnership with Comcast Corp. to bolster content on Twitter.
What to expect?
Earnings: Analysts polled by FactSet on average expect earnings of 29 cents a share, which would be an increase from 25 a share in the fourth quarter of 2019. The estimate has risen from 22 cents a share on Sept. 30.
Contributors to Estimate, a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, company executives, academics, and others, are also projecting earnings of 29 cents a share on average.
Revenue: Analysts on average expect Twitter to report $1.18 billion in fourth-quarter revenue, according to FactSet, up from $1.01 billion the year before.
Estimate contributors are expecting revenue of $1.18 billion.
Stock movement: Through Friday, Twitter shares are up 53% over the past 12 months, giving the company a market value of $44.9 billion.
What analysts are saying?
• “Trump’s banning by Twitter, complaints about ‘censorship,’ the emergence of Parler and Gab, and the weeding out of QAnon accounts may have triggered defections by more ardent Trump supporters, offsetting any growth that occurred during the quarter.” — wrote Wedbush Securities analyst Michael Pachter, while reiterating a neutral rating and $47 price target on Feb. 5.
• “The first half of 2020 was a trying time for Twitter, as its ad business was severely impacted by the cancellation of live events and the summer’s ad boycott. But as events started returning in Q3, so too did advertisers. Q4 could be an equally strong quarter, with the holiday season and improvements in direct-response offerings boosting spend, barring any potential pullback from advertisers around the 2020 U.S. presidential election…” — eMarketer analyst Jasmine Enberg said on Feb. 4.
• “The recovery in digital brand advertising demand was pretty solid at TWTR in 4Q based on our checks. Most categories are seeing higher commercial activity following the initial post-COVID-19 demand drop off. Tech, media/streaming, auto and CPG were all solid categories on TWTR in 4Q.” — Barclays Capital analyst Ross Sandler, while assigning an underweight rating and price target of $36 on Jan. 21.
• Though the stock seems rudderless ahead of earnings, Goldman Sachs is telling clients to prepare for a potential surge in reaction to the news. Heath Terry, the bank’s internet analyst, has told clients that Twitter is well-positioned to benefit from a significant increase in digital advertising spending.
He forecasts a 24% year-over-year increase in 2021, compared with a 9% increase in 2020. The sharp increase reflects an increased ability for companies to better target, and measure, the efficacy of online advertising, coupled with the growing sophistication of online platforms like Twitter to use data.
Much of this online-advertising thesis is familiar. What makes it interesting at this moment is that the stock market is a bit off-kilter and yet still hovering around record highs. Twitter’s year-to-date weakness, coupled with the stock lagging the broad market over the past three months, could create a potentially attractive pre-earnings setup for aggressive investors.
Twitter Long (Buy)
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