Twitter Stock Forecast: Social Media Star Rallies As It Enters S&P 500

 

This article was written by Julia Masch, a Financial Analyst at I Know First.

 

Twitter Stock Forecast: Social Media Star Rallies As It Enters S&P 500

“Twitter’s like this boxer that might not land a knockout punch, but they keep slugging away,” – Jim Cridlin, global head of innovation at WPP PLC’s Mindshare unit

(Source: Pixabay)

Highlights

  • Profiting From Profit
  • World Cup and New News Win Engagement
  • Current I Know First Bullish Forecast for TWTR

Twitter (NYSE:TWTR) has had its share of struggles in the past with 16 consecutive quarters without profit following its IPO. But things are starting to look bright for Twitter as it finally produced its first profit and eventually got added to the S&P 500 replacing Monsanto in the prestigious index. TWTR price has been impacted immensely by these positive developments. The stock price has outpaced all of the other stocks in the S&P 500 except Netflix (NFLX) YTD. Even still, Twitter is still competitive with the streaming giant with gains in 87.68% in comparison to Netflix’s 94.95%.

(Source: Yahoo Finance)

On top of this large YTD increase, over the past 12 months, Twitter’s stock price has increased a whopping 175.95% from $16.67 on June 18, 2017 to a closing of $46.oo on June 18, 2018.

Profiting From Profit

The fact that Twitter has finally begun producing profit as a public company has given investors confidence in the social media company. On top of 2 consecutive profitable quarters, the company expects to be lucrative for the full fiscal year. Clearly the initiative Twitter set in early 2017 to become profitable by the end of the year came to fruition as Q4 2017 was their first posted profits. Q1 2018 followed suit was strong numbers such as 21% increase in revenue to $664.9 million well above analyst expectations of $605.4 million.

(Source: Yahoo Finance)

This revenue growth was driven by video ads which now account for over half of the company’s revenue. Even though the cost of advertising fell, advertising as a whole produced revenue of $575 million as users have been engaging more with sponsored posts. This strong revenue generated $61 million in profit with EPS of $0.08. Factoring in adjustments, EPS increases to $0.16 also surpassing analyst expectations of $0.12. In comparison, in the first quarter of 2017 the company lost an almost equivalent amount of $61.6 million. Revenue was also beneficially impacted by data licensing which has wider margins than the advertising portion of revenue.

One of the main concerns for investors in the past has been user growth. While Twitter does not disclose the exact number of daily users, they claim that in Q1 2018, there was a 10% increase in amount of users who go on the social media platform daily. On top of this, the company has increased efficiency leading to cut costs and greater revenue across the board. Based on this, analysts have high hopes for Twitter based on the company’s solid start to the year and expect EPS of $0.17 for the current quarter. Despite turning losses, Twitter has consistently beaten expectations quarter after quarter and looks to continue this trend.

(Source: Yahoo Finance)

World Cup and Curated News Win Engagement

One of the most popular sporting cups, the World Cup, occurs only once every 4 years. During the last World Cup Twitter saw increased discussion about the teams competing and the goals scored and hopes to capitalize on this even more in 2018. Thanks to a partnership with Fox Sports, the company will be able to provide nearly real time updates on the games being played. Twitter has been working extremely hard to be a unique platform that will maintain current users while also attracting new ones and video offerings have been one of the key ways Twitter is doing this. On top of the Fox Sports deal, TWTR already has agreements with media companies from Disney to Major League Baseball. Videos allow the use of pre-roll ads which begin playing as soon as the user clicks on an embedded video and these have been one of the drivers of advertisement revenue. This allows the company to differentiate itself from Facebook’s business model and mimics that of a TF network. Almost instantaneously, videos of goals from the World Cup and reactions to them will be posted to Twitter. On top of this, Twitter has rolled out individual pages for every game leading to increased engagement and greater ad revenue. The World Cup will continue through mid-July and should drive profit for the quarter.

(Source: Minsvyaz)

Twitter has been working extremely hard to be a unique platform that will maintain current users while also attracting new ones and video offerings have been one of the key ways Twitter is doing this. Live streams allow Twitter to host exclusive content without having the hassle of creating it.

As another way to boost engagement, the company has released one of the most comprehensive updates in years which is a revamp to the explore and news section. Now, Twitter will use AI to predict topics relevant to individual users and curate each account’s news and explore sections. On top of this, Twitter will send notifications on events it thinks its users will be interested in which should drive daily traffic and further increase engagement.

Technical Analysis

Over the past year, TWTR has surpassed both its 50 day (purple) and 200 day (dark blue) simple moving averages (SMA) indicating a bullish trend for Twitter. While the stock price dipped below the 50 day SMA in April and early May, it has recently risen immensely since then in comparison to the technical indicator. On top of that, since a golden cross occurred in October, a the 50 day SMA has consistently stayed well above the 200 day SMA, another sign that the stock is on the upswing.

Analyst Recommendations

Currently the majority of analysts rate Twitter as a hold with almost a third rating it either as a sell or underperform. The average recommendation rating for Twitter is slightly better a hold at 2.9.

(Source: Yahoo Finance)

Current I Know First Forecast For TWTR

The I Know First Forecast is currently bullish for Twitter over the 1 month, 3 month, and 1 year time horizons with high predictability signals of over 0.4 for all 3. The signal of 450.41 for the long term forecast for the company is particularly strong.

Here is the explanation for how to read the I Know First Forecast and Heatmap.

Conclusion

Twitter has surged over the past year and should continue to. The company’s addition to the S&P 500 shows confidence from the financial world. Additionally, Twitter is finally generating consistent profits for the first time since becoming a public company with expectations to increase revenue and end the year profitably. The bullish trend is reiterated by my technical analysis and the I Know First algorithm.

Past I Know First Success With Twitter

After the company reported its first profit, on February 21, I Know First posted a Twitter Stock Forecast for 2018. In it, the I Know First algorithm produced a bullish signal for TWTR. Since the article was posted, the stock price has increased by 43.26%, highlighting the accuracy of the I Know First machine learning algorithm.

Current I Know First subscribers received this bullish TWTR  forecast on February 21, 2018.

Please note-for trading decisions use the most recent forecast. Get today’s forecast and Top stock picks.