Twitter in spotlight after Facebook and Snap post strong results

Twitter has a lot to live up to when it reports earnings on Thursday after better-than-expected results from rivals Facebook and Snap sent their shares soaring.

With its move into new advertising formats such as video and efforts to improve user experiences with a crackdown on spam and harassment, some analysts see Twitter also beating Wall Street’s projections. The social media company is expected to report fourth-quarter revenue growth of 19 per cent for a total of $867.1 million, according to the average of 32 estimates compiled by Bloomberg.

"We expect improved advertising execution and likely upside to consensus/guidance," Raymond James analyst Aaron Kessler, who has a market perform rating on the stock, wrote in a research note.

Twitter so far has managed to boost sales despite stagnant user growth. Monthly active users are expected to total 324 million in the fourth quarter, down from 326 million in the previous quarter, according to the average of five estimates compiled by Bloomberg News. The San Francisco-based company’s shares have gained about 6 per cent since Facebook reported revenue that exceeded estimates on January 30th as advertisers continued to spend money on its platforms despite privacy scandals.

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The shrinking pool of monthly active Twitter users has increased focus on daily users, which continue to grow. BMO Capital Markets analyst Daniel Salmon expects daily users to expand by 10 per cent in the fourth quarter, compared with the year earlier, up from 9 per cent growth in the third quarter.

In addition to engagement, analysts are focused on revenue growth relative to the number of users. Mark Mahaney, an analyst with RBC Capital Markets, projects ad revenue per monthly active user to rise 19 per cent compared with year-ago period.

The options market is signaling a 13 per cent change in the share price following the earnings release. That’s in-line with the average move after the last eight reports, which were evenly split between gains and declines.

About 8.5 per cent of the open interest in Twitter is set to expire this week, with calls outweighing puts by 29 per cent. The most widely held contracts are the $38 calls, which implies an 12 per cent rally from current levels. Despite shares being up 18 percent year-to-date, implied volatility is elevated at 205 per cent versus a three-month historical average of 59.

- Bloomberg