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War of Words: Twitter, Facebook Earnings All About Sustainability

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July 28, 2015
War of Words: Twitter, Facebook Earnings All About Sustainability

Call it a war of words. Social-media powerhouses Facebook (FB) and Twitter (TWTR) will unveil earnings this week that could underscore how the two are wrestling for sustainability in the battle to remain relevant and make money.

Social media names are widely held among retail investors. It will be interesting to see what will be the magic sauce for making money off social media. Facebook has one of the most amazing data bases in the world. Now what can they do with it?

Investors will be looking at how the two are monetizing how many of us read and share news. Yes, that’s right: some 63% of both Facebook and Twitter users turn to the site to consume news, according to a recent Pew Research study. Twitter, of course, has built its site on just that, while Facebook has been edging into the news business.

But on the social-sharing side, where Facebook is straight forward—post a selfie, add some names—Twitter is more knotty, some analysts complain. It has its own language—use “4” in place of “four” to save on character count—and it’s acceptable to “friend” or “follow” people you don’t know. Pew’s report suggests the two will battle it out on news and information, a skirmish that Twitter is winning despite the lopsidedness between them.

User Growth

Twitter reports after today’s closing bell. Its forecast and recent stock history aren’t as rosy as rival Facebook, mostly because it’s still working out growing pains. Earnings tend to fluctuate quarter to quarter. Industry analysts are looking for a profit of $0.04 per share, double the year-ago results. Sales are projected to climb 10% to $480.8 million. The company had cast a wide net for sales guidance of $470 million to $485 million. Its user growth was up 18% in Q1 to 302 million monthly active users. Can it improve?

Remember, too, that Twitter has had a rough-and-tumble year in which it lost Dick Costolo, a popular chief executive who resigned July 1 after getting tired of being second-guessed by a demanding Wall Street, financial media said. Twitter is still searching for a permanent boss.

A good report would do the stock well. It has languished so far in 2015, down some 8% to date, and more than 37% off its 52-week high. It also tends to be volatile around earnings. Short-term TWTR options traders are pricing in about a 12.5% move in either direction for the underlying shares around the earnings report, according to TD Ameritrade’s thinkorswim® platform

Key Metric: Mobile Ads

Facebook is set to report after the bell Wednesday and analysts are forecasting per-share earnings of $0.47 on revenues of $3.97 billion. That’s a 36.4% jump in sales but represents a slowdown from a faster clip. Like any megacorporation, the bigger it gets, the slower the growth rolls in.

Facebook boasted 1.44 billion monthly active accounts, up 13% year over year, in Q1. It logged 1.25 billion mobile monthly accounts. Some 73% of its ad revenue, a key segment, is driven by mobile advertising.

The stock is up nearly 26% year over year and near all-time highs. An upbeat quarterly report could power it even higher. 

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