Financial market research and analysis

Twitter will release its 3Q results on Tuesday after the market close. The expectations are mixed.  The EPS estimate fell by 1.58% down to -0.268/share over the past four weeks. Nonetheless, this is still 7.5% higher on yearly basis as sales are expected to have increased by more than 10% since last quarter, and by a significant 55% compared to Q2 a year ago.

In Q2, Twitter had surprised the market by printing $502.383 million worth of sales, 4.24% higher-than the average estimate. And since Jack Dorsey took over the role of CEO in June, we have been seeing new features being launched more swiftly in order to monetise the service more efficiently. Monetising has been an issue that has left Twitter behind the curve compared to other social media services. The company is still behind Facebook for example for monetising users. In the 2Q, Twitter generated $1.43 per monthly active user, 45% less successful than Facebook ($2.61). Yet given that Twitter appeals to an older user base than Facebook, creative and more sophisticated ideas need to be implemented in order to expand user coverage.

With about 300 million users, Twitter is less popular than Instagram. Facebook has more than 1.4 billion users.

To be successful, Twitter should not merely be perceived as an online chatting room, but as an efficient and influential news hub that’s very often the first to break a story.

It’s also about gathering opinions on subjects that matter socially, economically, politically, culturally. The most recent partnership with CBS News on US’ second democratic debate, #DemDebate, shows that steps are being taken in the right direction. The question is whether this will suffice to convince investors to buy the stock or more needs to be done from a business perspective to attract funds. Liking the product does not necessarily mean buying it.

Having said this, Twitter is in the process of  restructuring. With the a new CEO in place, the company announced plans to cut 8% of workforce starting from October. Business restructuring is expected to give a bump to Twitter’s operating profit from Q4. Severance costs in the interim are expected to be run to a maximum of $20m with other restructuring costs likely to be around the $10m mark. This will not magically help user growth to improve however.

The operating profit is expected to jump to $112.173 million from $47.121 million eyed for Tuesday’s announce.

Twitter shares tumbled by 60% between April and August this year and investors are still in wait-and-see mode before buying Twitter shares. Over 44 brokers, 57% prefer to remain on hold, 36% are willing to buy, while a tiny 7% would be sellers.

Technically, the share price will be considered in the bear market below $33.40, the Fibonacci 38.2% retracement on April-August decline. Above this level, Twitter shares could gain up to $37.20, analysts’ consensus target price for the next twelve months.

The options market is implying a potential move of 15.94%.