The only thing that may overshadow Twitter’s earning report, scheduled for this week on Thursday, is Snapchat’s (Pending: SNAP) IPO. At a $3 billion cash raise and an implied market cap of $20 billion, it dwarfs that of Twitter’s market cap of $12.9 billion. SNAP has no voting rights but exceptional revenue growth. Unfortunately, cloud payments to Google exceeds that of the revenue SNAP brings in.
All of the SNAP news just makes Twitter’s EPS growth of 15% next year all the more important. The company is losing active users and engagement is dropping. On its earnings report, TWTR will need to demonstrate costs are dropping faster than the decline in revenue. If it fails to report this, then only hopes of a buyout will keep this stock above the $15 - $17 share price.
Ad revenue after implementing NFL video clips will interest shareholders. If ad sales did not gain any traction, Twitter has few other tricks available to re-accelerate growth. Twitter will demonstrate it is clearly losing users to Snapchat, widening the valuation disparity between the two companies.
New investors and speculators will not care that Snapchat will never make money. They will only care that the user base is growing. That Facebook (FB) is mimicking every feature Snapchat introduces is bad news for Snapchat. The more sticky Facebook becomes, the worse it is for Twitter.
At a 29x forward P/E multiple, Twitter is not a cheap stock. If it lives up to expectations, the higher earnings will offset today’s expensive share price. On Thursday, investors will look for any clues from CEO Jack Dorsey that he is confident he may turn the company’s fortune around.
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