It’s all about the eyeballs
02/06/19

●Twitter scheduled to report earnings Thursday morning

●Stock has gained around 30% since late December

●Tech shares have been on upswing


 

If the following chart has a familiar look, it should. Although people watching the stock market on Christmas Eve got the equivalent of a lump of coal in their stockings—a 2.71% nosedive by the S&P 500 (SPX) on a traditionally quiet-as-a-mouse day—since then the market has pretty much been the gift that keeps on giving, with many stocks putting together tape-busting gains off their December 24 lows.

Twitter (TWTR), 12/21/18–2/5/19. Twitter (TWTR) price chart. Recent rally.

Source: Power E*TRADE


Even so, Twitter’s (TWTR) 30% rally may surprise some traders, given the rocky road many social media stocks traveled in 2018. But more recently, there’s been a noticeable absence of controversial news in this area, not to mention positive headlines generated by Facebook’s (FB) huge quarterly report last Thursday, which showed growth in the all-important user numbers as well as earnings and revenue outperformance.1

Social media—like any other media—remains a game of eyeballs (or ears)—getting them, keeping them, and growing them. Because more eyeballs means a bigger advertising audience, and media still runs mostly on advertising.

So, in addition to its headline earnings and revenue numbers—which Twitter has usually beaten over the past five years2—people will likely be paying attention to those eyeball numbers, as well as the company’s longer-term advertising strategy.

Twitter’s previous quarterly report from October 25 (the final “E” on the chart below) showed ad revenues had jumped 29% year over year, and ad engagements had increased 50%. The company’s video advertising and live-streaming initiatives, which include deals with everyone from gamer Activision Blizzard (ATVI) to Sony Music, Major League Baseball, Disney (DIS), ESPN, and the PGA Tour, have been cited as a head-on attempt to expand the platform’s functionality and keep up with the never-ending battle for eyeballs and ad dollars.3

Twitter (TWTR), 8/11/11–2/5/19. Twitter (TWTR) price chart.  “E” for earnings.

Source: Power E*TRADE


The chart above also shows that, aside from an excursion above it in June-July 2018, TWTR has spent the past year almost exclusively in a range between $37 and $26, first defined by the March 2018 high and the April low three weeks later. The stock’s December 24 low tested the bottom of that range; the volatility exhibited after the five most recent earnings releases suggests a test of the upper boundary is certainly possible.

There are never any guarantees when it comes to earnings—other than volatility—but traders will likely be watching this one closely.

Market Mover Update: Dropbox (DBX) followed up on Monday’s up move with another big rally yesterday, gaining more than 2%. Boeing’s (BA) jump a new record above $400 highlighted the year-to-date strength in defense and aerospace stocks (see “Defense takes the field”). Industrials still lead all S&P 500 sectors this year, and the defense and aerospace sub-sector leads industrials with a nearly 18% YTD gain.

Today’s numbers (all times ET): International Trade (8:30 a.m.), Productivity and Costs (8:30 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Boston Scientific (BSX), Cognizant Tech (CTSH), Eli Lilly (LLY), General Motors (GM), New York Times (NYT), Regeneron Pharma (REGN), Spotify (SPOT), Take-Two (TTWO), FireEye (FEYE), Immunomedics (IMMU), Match Group (MTCH), NETGEAR (NTGR), NXP Semi (NXPI), Sonos (SONO).

 

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1 MarketWatch. Facebook worth $45 billion more after earnings set it up to be potential ‘comeback story of 2019’. 1/31/19.

2 StreetInsider. Twitter, Inc. (TWTR) Earnings. 2/5/19.

3 Zack’s Equity Research. Robust Video Content to Drive Twitter's (TWTR) Q4 Earnings. 2/5/19.