My call is to buy Twitter ahead of earnings in early February. Below I share my fundamental and technical logic -- contrary to Citron Research -- about why Twitter is a buy near $30.

 

And we also have the Zacks Earnings Surprise Predictor (ESP) working in our favor as analysts are raising estimates into the quarterly print.

 

Now here is the report I gave you in late December about why Twitter is going higher...

 

The brutal Q4 market correction is making many growth stocks investable again and one of them is Twitter.

 

Actually, Twitter saw a strong rally off of its October lows after reporting a 50% EPS surprise for Q3, but has slid back over 25% in the six trading sessions up to December 24.

 

The good news is that the stock held above those October lows just above $26 and should be on growth investor "buy lists" as the market stabilizes.

 

My colleague Tracey Ryniec chose Twitter for a Bull of the Day feature in November and some of her post-earnings notes are worth reviewing...

 

Twitter is winning over Wall Street quarter by quarter. This Zacks Rank #1 (Strong Buy) is expected to grow both revenue and earnings by the double digits in both 2018 and 2019.

 

Twitter operates a social media platform in 40 languages around the world that provides users with updates on what is happening, including breaking news, globally.

 

 

On Oct 25, Twitter reported its third quarter results and beat the Zacks Consensus Estimate by 7 cents. Earnings were $0.21 versus the consensus of $0.14. That's a beat of 50%.

 

Revenue rose 29% to $758 million, up from $590 million.

 

Of that total revenue, most came from advertising revenue which rose 29% to $650 million. Half of the advertising revenue is now coming from the video ad format.

 

Wall Street is always watching the Daily Active Users count, which fell to 326 million from 335 million in the second quarter but that was mostly the result of the company's policy of purging fake, spam and abusive accounts.

 

(end of excerpt from Tracey's Nov 14 report)

 

 

The two metrics that jump out to me here, besides the big bottom line beat, are year-over-year revenue growth of 29% -- on pace to break $3 billion this year -- in an environment where social media is under big clouds of political controversy.

 

If the Twitter platform is having to "self-police" to remove harmful users and accounts, and these kinds of numbers are the damage, large growth investors appear good with that.

 

While the Zacks Consensus profit estimate for 2018 was bumped up to $0.80 from $0.71 primarily due to the big EPS beat, a majority of analysts joined in moving 2019 EPS up 13% from $0.78 to $0.88.

 

That's earnings growth of just 10.5% over 2018, a phenomenal year when the company really opened the profit valves with over 80% bottom line growth. 

 

But with revenues expected to advance nearly 15% to $3.43 billion next year, the funnel at the top is still offering plenty of opportunities for monetization.

 

To follow and stay in sync with the growth at Twitter, all you need to do is keep your eyes on the accelerations and decelerations in EPS estimates. And one of the handiest ways to do that is with the Zacks Price & Consensus chart.

 

What you see below: on the left-hand scale are lines plotting the changes in annual earnings estimates against the stock price on the right-hand scale. The size of the green arrows indicates the magnitude of the earnings beat...

 

 

 

As the estimates stabilize at new higher level between 80 and 90 cents, we will find growth investors willing to pay 30+ times for the advertising power of a social media platform with strong user affinity across many cultural and professional circles -- finance, politics, sports, health, science, technology, big data/AI, entrepreneurship, education, entertainment, travel, fitness, cooking, spirituality, publishing, celebrities and so on.

 

Did you even imagine there were so many different social groups using Twitter? Neither did I until about two years ago when I began exploring the platform more and finding its value for such diverse interests.

 

While Twitter can be subject to some of the same political abuses as Facebook , these sophisticated and knowledge-focused groups tend to have more "self-regulation" from within. 

 

I have friends and family who don't use Twitter. They say they "don't get it" and don't see the value, nor how it's any different than Facebook.

 

Where do I start? How about, it's completely different! Most people are on Twitter to exchange credible news and ideas, not what they ate for breakfast or what they bought at the mall.

 

Here is a summary of a Twitter thread I made in July with my Tweet-less associates in mind...

 

 

My top 3 uses of the ecosystem...

 

1. Share my content and views with a huge, open, discussion cauldron.

 

2. Meet fascinating and smart people globally, and get their regular content/views/expertise that I either RT, or keep for myself ;)

 

3. Eavesdrop on good conversations between smart experts to learn more in areas I’m weak. Also observe cro-magnons, creationists, and conspiracy theorists at work. (Behavioral economics is one of my passions.)

 

I should add a fourth one...

 

4. Get fresh news, research, and articles from any industry or field I am interested in -- from professional sources, institutions, and experts within them. Very often, I can rely on the latest news, events, and informed commentary instantly streaming into my Twitter feed from the networks of credible experts I follow.

 

My networks know and tell me stuff long before it's news. 

 

The platform also allows you to create threaded topical conversations that are easy to find and navigate.

 

Think of the Twitter platform more like YouTube than Facebook -- but instead of a one-way stream of content to passively absorb you have great two-way discussions and knowledge sharing constantly in progress, 24/7.

 

You wouldn't #deleteYouTube anymore than you'd drop your favorite cable shows, news sources or other "unplugged" content services.

 

For these reasons, Twitter is a content platform that will continue to gain traction, users and new uses as it evolves. It will probably never have 2 billion users or $50 billion in revenues like Facebook, but then again it also won't flame out in a spectacular blaze of self-detonation.

 

Disclosure: Kevin Cook is a Senior Stock Strategist for Zacks Investment Research and he may be starting a long position in Twitter shares by the time you read this.

 

 

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.