Twitter Earnings Expected to Be Dismal

Twitter Inc. (NYSE: TWTR) let go four senior executives (or they left on their own, which is unlikely). That will not solve Twitter’s short-term problem, which is that Wall Street estimates for earnings are extremely poor.

According to data for the company posted at Yahoo! Finance, earnings per share will be $0.12 for the quarter just ended, flat with the final quarter of 2014. Revenue is expected to rise 48.2% to $710 million, according to the average of forecast from 36 analysts. For most companies, the increase in revenue would be impressive. However, Twitter’s figure represents a deceleration of past results and is a sign that it cannot meet Wall Street expectations. In the third quarter of 2015, revenue rose 57.6% to $569 million. For the first nine months of last year, revenue rose 63.3% to $1.51 billion.

The earnings forecasts roughly meet Twitter’s own guidance, at least in terms of revenue. In the company’s third-quarter release, management posted this:

Twitter’s outlook for the fourth quarter of 2015 is as follows:
• Revenue is projected to be in the range of $695 million to $710 million.
• Adjusted EBITDA is projected to be in the range of $155 million to $175 million.
• GAAP expenses are projected to include the vast majority of the $5 million to $15 million of total restructuring charges expected from corporate restructuring activities. These charges are projected to be $10 million to $20 million in cash expenditures. GAAP expenses are lower than cash restructuring costs due to a credit related to non-cash stock-based compensation expense reversals for unvested stock awards.
• Capital expenditures are projected to be no more than $110 million.
• Stock-based compensation expense is projected to be in the range of $170 million to $180 million, excluding the impact of equity awards that may be granted in connection with potential future acquisitions.

[nativounit]
New management is unlikely to solve Twitter’s problems in the near term, and there is a high chance they cannot fix them at all. Advertisers do not believe that Twitter is an effective way to reach target audiences. Without changing its business model, that cannot be corrected.