Full Twitter Earnings Preview: Estimates, Options, Shorts, Offering and More

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Twitter Inc. (NYSE: TWTR) is nothing short of a very controversial stock, being simultaneously a phenomenal growth story as a company. The micro-blogging site reports earnings on Wednesday after the close, and we have prepared a preview looking at the trading history, analyst opinion, options expectations, valuations and more.

To call Twitter a battleground stock would be a huge understatement. The post-IPO trading has come with a huge pop, followed by a large rally, followed by a huge sell-off — ultimately with yet another recovery.

Twitter has only been public since November, and the post-IPO range has been $38.80 to $74.73. The post-IPO opening price was $45.10.

One thing that has been so hard to evaluate is that analysts are literally all over the place. Many analysts think Twitter should trade in the $30s. The highest price target on Wall Street for the stock is $75.

With shares trading at $65.50 on the morning ahead of earnings, after a drop more than 1% so far, the earnings expectations are quite diverse. Thomson Reuters is calling for earnings to be a loss of $0.02 per share on revenues of $217.8 million. It is unknown if Twitter will offer guidance. This will be its first formal post-IPO earnings report. If guidance is given, here are the estimates:

  • March quarter: -$0.03 earnings per share on $215.2 million in revenue
  • Full 2014: -$0.04 earnings per share on $1.13 billion in revenue

Where things get dicey is that Twitter is still expected to lose money in 2014. That is despite a 77% expected revenue gain. Again, estimates are all over the place. At least one analyst actually announced that the company could be profitable in 2014, and another estimate above consensus calls for sales to be more than $1.3 billion.

Perhaps the biggest concern has been in valuations. Analysts are often Chartered Financial Analysts, and they just cannot bring themselves to pay enough for revenues out to 2060 or beyond as of today. Twitter’s market cap is just over $35.3 billion, so the company trades at an expected 31 times 2014 revenue estimates. On a trailing basis, Twitter is valued at 55 times trailing sales expectations.

Another huge wild card is that Twitter’s short interest keeps growing. The number of shares borrowed and shorted totaled 32.7 million as of January 15, up from 29.4 million at the end of December and 23.7 million in mid-December.

One last look is the world of volatility and stock options. A straight volatility bet implies that options traders are calling for a move of up to $10 in the stock based on the news. This means that volatility bets imply that the stock has to rise to $75 or drop to $55 to be profitable.

As far as the chart is concerned, we do not use charts on companies this new.

One warning to the wise: It seems possible that the company could discuss an IPO lockup period. This would allow insiders to sell shares. While the end of the period is still a couple of months out, what if the company and underwriters somehow allow sellers to unlock earlier than expected? The IPO price was only $26, and the formal share offering was only 70 million shares. If almost 33 million shares are short, and if institutions bought Twitter and held on in the offering, then the float is still rather small. It would not be out of this world to imagine that the float could greatly be expanded here — and earlier than expected.