Twitter’s Q1 Report Could Show Growth Amid Ongoing Transparency Effort

• Reports Q1 2019 Earnings on Tuesday, April 23, before the market opens
• Revenue Expectation: $775.23M
• EPS: $0.15

For Twitter (NYSE:TWTR) investors, or even for those considering purchasing shares, the past year has been confusing. It's become difficult to form a clear picture about the social media stock's growth potential since the company has been going through major restructuring even as it endures criticism that it’s not doing enough to curb online violence and hate speech on its platform. This negative perception may improve when the San Francisco-based company reports its first-quarter earnings on Tuesday.

Though the threat of government regulation for social media platforms has increased, we're still comfortable recommending Twitter shares for long-term investors. The reason: the company has successfully sustained its growth momentum even while operating in a tough environment replete with multiple headwinds.

This past year, 2018, Twitter showed clear improvement in its financial health. It saw its first full year of profitability under generally accepted accounting principles. Fourth quarter sales surged 24%, while profit, excluding some costs, rose to $0.31 a share, compared with the average analysts’ estimate of $0.25.

TWTR Weekly 2016-2019

What’s making Twitter appealing to both users and advertisers is the constant improvement in its user engagement alongside the company’s efforts to purge its platform of fake accounts. To attract both advertisers and users, Twitter has simplified the platform, making it easier for people to find relevant content and accounts to follow.

As we said similarly in March, in our view, Twitter is playing smartly in this environment where regulators, politicians and the general public are scrutinizing social media companies more closely, after a series of data breaches and political manipulation of these platforms have made headlines.

The company has provided transparency by adopting an open approach to problems within its network. Since last summer, CEO Jack Dorsey has warned that Twitter won’t see user growth while it undertakes a massive cleanup operation. Indeed, monthly active users on the platform averaged 321 million in Q4, a fall-off of 9 million from the same period a year earlier, down 5 million from the third quarter.

Twitter’s recent share performance also suggests that investor confidence in Dorsey’s strategy of transparency is growing stronger. Since shares hit the December 2018 low at $26.19, Twitter stock has gained more than 30%. It closed at $34.40 on Thursday.

Bottom Line

We're not anticipating any major, positive surprises when Twitter releases its Q1 numbers tomorrow. Right now all social media platforms exist in an unending state of firefighting, while their shares remain highly vulnerable to negative events.

That being said, we also believe that Twitter is much better positioned to generate higher profitability going forward. As it continues its push to gain a greater market share of video advertising amid efforts to improve user experiences with a crackdown on spam and harassment, we see the company as a good long-term bet.