Twitter Stock Prediction: Twitter is Starting to Fly After Reporting its First Net Profit

The article was written by Vladimir Zaslavsky, a Financial Analyst at I Know First.

Twitter, Inc. (TWTR) Stock Forecast for 2018

“Q4 was a strong finish to the year…I’m proud of the steady progress we made in 2017, and confident in our path ahead.” ~ Jack Dorsey, CEO Twitter

Summary 

  • TWTR reports net profit for the first time
  • Shares soar to two-year highs
  • Social media platform performance comparison
  • TWTR and Trump’s influence
  • I Know First stock forecast for TWTR based on Artificial intelligence

Twitter Inc. is starting to fly as it reported a net profit for the first time as a publicly traded company and returned to revenue growth after three quarters of declines. Nevertheless, challenges still remain as the company plans to increase spending in 2018.

[Source: The company]

 

Twitter has been able to monetize its platform, sending shares soaring to two-year highs. However, this may not resolve the company’s broader problems. Twitter is struggling to increase its user base, and anyone can read tweets without having to sign up – ultimately limiting advertising opportunities. Twitter has additionally contended with multiple stalled takeover bids, and several departures of high-ranking executives, including its longtime chief financial officer Anthony Noto in January, 2018.

 

 

Growth in data licensing and other segments (insight on the collective stream-of-consciousness that is its platform which it sells to customers) and video advertising fueled Twitter’s fourth-quarter earnings results.

Twitter stated it has an average of 330 million monthly active users in the final quarter of 2017, remaining unchanged from the previous quarter and below Wall Street’s estimate of 333 million. In contrast, Facebook has 2.2 billion monthly active users and Instagram has over 800 million monthly users.

Competing with Facebook, Instagram and Google has proven challenging for Twitter – particularly with respect to digital advertising. In the past revenue did not meet expenses, however Twitter has reduced its costs and focused on new revenue streams, including live video.

[Source: Yahoo Finance]

Fourth quarter earnings have been released by all of the major social media companies. Facebook and Alphabet generated $12.9 billion and $32.3 billion respectively, both experiencing double digit growth over the same period in the previous year. Snap (Snapchat’s parent company), posted a smaller than expected loss, closing above its IPO price for the first time in months.

Twitter’s GAAP profitability in the fourth quarter demonstrated progress. Performance has steadily improved throughout the year, and adjusted EBITDA rose 43% year-on-year in the fourth quarter, after just 3.4% in the first three quarters and declining in the first half. Whilst it appears promising, most of the gains are resultant of cost-cutting. In the fourth quarter, R&D spending fell 26% compared to the previous year and sales and marketing decreased by 12%.

Ultimately, it is not sustainable to continue cost-cutting, and it is essential that Twitter will be able to grow its revenue. Revenue only rose by 2% year on year to $732 million in the fourth quarter, and declined for the full year. Data licensing and other segments also grew 10% to $87 million, and advertising revenue increased 1% to $644 million.

Twitter and Trump

Twitter has attracted significant attention as Donald Trump continuously uses the platform as a vehicle to express his messages throughout his campaign and presidency. Indeed, the platform is now considered as a top source of news, particularly from the president. Trump’s use of Twitter has significantly benefited the company and also drawn a large number of users to the platform.

Trump’s most liked tweet

Trump’s most retweeted tweet

Analyst Coverage

A number of analysts, polled by Yahoo Finance, shared their views on Twitter’s current momentum. Of 36 analysts surveyed, the average recommendation is to hold, indicating that analysts do not think that the stock is undervalued.

 

Summary

Whilst Twitter is starting to fly, it is unlikely that it will reach the heights of Facebook and its other competitors. However, it is no longer sinking. If it can continue to turn a profit and maintain its current momentum, it has potential to continue growing. Yet, Twitter still faces a range of lingering problems before it can soar to new altitudes.

 

I Know First Algorithmic Bullish Forecast for TWTR

I Know First currently maintains a bullish stance on TWTR with signal strength 65.82 and predictability 0.75 for the 1-year forecast.

 

 

I Know First Algorithm Heat-map Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.