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Twitter Earnings: Big Revenues Likely, but User Growth Remains a Question Mark


Twitter should create some fireworks after the close today.

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Twitter (NYSE:TWTR) reports first-quarter earnings today after the close, and following last quarter's debacle, it's going to attract a lot of attention.

Okay, last quarter wasn't actually a debacle.

Twitter delivered significant upside surprises in earnings and revenues and also issued very strong first-quarter revenue guidance.

However, traders were disappointed in Twitter's user growth, which slowed significantly, as you can see in the chart below:

The stock subsequently collapsed, as you can see here:

For the first quarter, analysts expect Twitter to report earnings of -$0.03 on revenue of $241.5 million. That revenue number is slightly above the company's guidance range of $230-$240 million.

Facebook (NASDAQ:FB) recently reported first-quarter advertising revenue growth of 82%, with a 257% increase in mobile.

Given Twitter's even greater leverage to the red-hot mobile market, and analysts not expecting much beyond the issued guidance, beating revenue expectations shouldn't be terribly difficult.

As far as the user count goes, I haven't seen a real consensus, but here are a few estimates of monthly active users compiled from news articles:

Wedbush Morgan: 262 million
Morgan Stanley: 256 million
Cantor Fitzgerald: 255 million
Wunderlich: 255 million
Sterne Agee: 254 million
Bernstein: 253 million

If we use 255 million as an unofficial consensus of sorts, expected year-over-year growth is 25%, while quarter-over-quarter growth is 5.8%.

Meeting or beating that number could go a long way in restoring investor confidence, as would a bounce back in timeline views, which fell for the first time last quarter.

Commentary from management will also be a factor in post-earnings performance.

There's a growing chorus of voices concerned about Twitter's ability to cross over into the mainstream, and it's important for management to instill some confidence, or at least get people excited about newer initiatives such as its native ad push with MoPub and its acquisition of Gnip.

In terms of ratings, analysts remain fairly ambivalent toward Twitter, with just seven buy ratings versus 14 holds and 13 sells.

So the fact that Twitter has fallen 37% since its fourth-quarter earnings report In February hasn't made the stock more attractive to Wall Street. Relatively speaking, peers such as Facebook, LinkedIn (NYSE:LNKD), and Yelp (NASDAQ:YELP) are loved by analysts.

I still see a lot of lot of risk in Twitter -- both on the upside and downside. I suspect the $41.50 weekly straddle, which is going for $5.65 (implying a 14% move), may be underpricing the potential action tomorrow, but that's always a very risky way to play.

I'm actually taking the other side of Wall Street's conservative view and am picking up a small flier in GSV Capital (NASDAQ:GSVC) as a short-term bullish play (I have longer-run concerns) into Twitter's earnings report.

As I discussed yesterday, GSVC is a closed-end tech investment fund with heavy leverage to Twitter, and it's been so beaten down that it should have solid upside on a Twitter rally (and perhaps holds less downside risk than a straight Twitter position). I don't expect to hold it past tomorrow morning.

Twitter: @MichaelComeau

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Position in GSVC.
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