Facebook (FB) and Twitter (TWTR) report first-quarter earnings on Wednesday, April 25. Here’s a look at what might be expected from their quarterly reports.
Two of the major social media companies are scheduled to report quarterly earnings this week. Twitter (TWTR) reports before market open Wednesday, Apr. 25, and Facebook (FB) reports after market close the same day.
After several years of lagging the S&P 500 (SPX), TWTR has been outperforming by a wide margin. At a couple of points throughout 2017, the stock was trading pretty close to its multi-year low of $13.73 it hit in mid-2015. Over the past year, it has more than doubled and is up about 27% in 2018 alone.
CEO Jack Dorsey has shown some improvement in the business in the last few quarterly reports. When TWTR reported Q4 2017 results, it was the first time the company had ever been profitable on a GAAP basis. Daily active users were up 12% year-over-year, its fifth consecutive quarter of double-digit growth, and monthly active users remained flat at 330 million.
In Q4, TWTR reiterated that it remained focused on growing revenue by improving its core ad offerings, tapping into new channels of demand and introducing new ways to buy ads, and continuing to grow data and enterprise solutions. Video remained TWTR’s largest ad format in Q4 and it has been one of the primary drivers of growth in its ad business, according to the company.
For Q1, TWTR is expected to report adjusted EPS of $0.12, up a penny from $0.11 in Q1 2017, on revenue of $610 million, according to third-party consensus estimates. Revenue is projected to increase 11% year-over-year, which would be the company’s second quarter in a row of year-over-year revenue growth. Prior to Q4 2017, TWTR had been consistently posting year-over-year revenue declines.
TWITTER ONE-YEAR CHART.
TWTR has had quite the run over the past year, starting at a low of $14.56 and closing at $31.22 on Monday, Apr. 23. The stock has recovered a little bit from its recent pullback when short sellers were attacking the company, but it still remains a ways from a 52-week high of $36.80 it hit on Mar. 14. The bottom chart shows the stock’s implied volatility, which is just below where it was at the last time TWTR reported. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
As you can see in the chart above, TWTR is prone to large moves around earnings. Around Wednesday’s earnings release, options traders have priced in just over a 12% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was on the high end at the 92nd percentile as of this morning.
In short-term trading at the Apr. 27 weekly expiration, calls have been active at the 30, 32 and 33 strike prices, while trading has been lighter on the put side and concentrated at the 30 and 31 strikes. Volume during yesterday’s session was highest at the 32-strike call with 6,175 contracts traded.
At the May 4 weekly expiration, there are a couple of calls that have significantly higher open interest than any other strike. At the end of yesterday’s session, there were 11,331 contracts open at the 32-strike call and 10,394 contracts open at the 35-strike call.
Further out at the May 18 monthly expiration, trading on the call side has been heavier at the 32 and 33 strikes. Again, recent trading has been lighter for puts and most of the activity has been at the 28 and 30 strikes.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
FB has been in the spotlight plenty lately. The discovery that a data firm, Cambridge Analytica, had gained access to private information on tens of millions of FB users resulted in CEO Mark Zuckerberg being called to testify before Congress.
It seemed like Zuckerberg did a nice job before Congress as the stock rose during his two days of testimony. The news of the privacy breach broke in mid-March and Zuckerberg has said on several occasions that there hasn’t been an impact on FB’s business. For Q1, FB is expected to report adjusted EPS of $1.35 per share on revenue of $11.5 billion, according to third-party consensus estimates. Over the past eight quarters, the company has beat estimates on both the top and bottom-line.
Beyond the top and bottom-line results, the company’s daily active users (DAUs), monthly active users (MAUs) and ad metrics are the other common focuses among analysts and investors. In Q4 2017, both DAUs and MAUs increased 14% year-over-year, although some analysts expressed concern that DAUs declined sequentially in the U.S. and Canada, where the company earns the highest average revenue per user. In Q4 2017, the average price per ad was up 43% and the number of ad impressions was up 4%, according to the company.
FACEBOOK 2018 CHART.
FB hit a new all-time high of $195.32 after it reported Q4 2017 results. Since then, the stock has pulled back amid the recent focus on the company’s data and privacy practices. Shares have recovered from their recent low of $149.02 and have been trading around the mid-$165 range. The bottom chart shows the stock’s implied volatility, which has dropped a bit from its peak in late March. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Around the upcoming earnings release, options traders have priced in a 5.2% stock move in either direction, according to the Market Maker Move indicator. Implied volatility was at the 73rd percentile as of this morning.
In short-term trading at the Apr. 27 weekly expiration, calls have been more active at the 170 strike price. On the put side, the 160 and 165-strike puts have been more active in recent trading. Looking at the May 18 monthly expiration, the 170 and 175-strike calls have been more active, whereas activity has been a little lighter on the put side and spread out from the 165 strike down to the 150 strike.
This is one of the busiest weeks for earnings this quarter. In addition to TWTR and FB, there are quite a few other tech companies reporting this week. Amazon (AMZN), Microsoft (MSFT) and Intel (INTC) all report after market close on Thursday, Apr. 26. Next week, we’ll see a few other major tech reports with both Apple (AAPL) and Alibaba (BABA) on the docket.
On top of earnings, both the European Central Bank and Bank of Japan are holding meetings at the end of this week. The Fed will meet the following week on May 1-2. The string of central bank meetings could add to earnings volatility.
Good Trading, JJ @TDAJJKinahan
Check out all of our upcoming Webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody. Looking to stay on top of the markets? Tune in to the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge. Plus, there's a new playlist on the TD Ameritrade YouTube Channel: Introduction to Volatility, featuring recent content from the TD Ameritrade Network.
The TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other's policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.