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What Should Investors Do with Twitter (TWTR) Stock After Dorsey Testimony?

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Twitter (TWTR - Free Report) CEO Jack Dorsey’s testimony in Washington sent shares of TWTR down roughly 6% both Wednesday and Thursday. This helped set Twitter up for what could be its worst week since the social media company reported Q2 financial results that caused TWTR shares to tumble 20%. So, let’s assess Twitter’s fundamentals as the firm takes heat for its role in the ever-present “fake news” scandal.

Washington

Dorsey, along with Facebook (FB - Free Report) COO Sheryl Sandberg, testified in front of members of Congress and the Senate Intelligence Committee Wednesday—Google (GOOGL - Free Report) executives were notably absent. Twitter’s chief executive was probed about the role his company played in the disruption of the 2016 election. The crux of the issue and Dorsey’s questioning is what has Twitter done and what will the firm do to combat the dissemination of fake news on its platform as the 2018 midterm elections near.

Twitter has also been accused of “shadow banning,” or de-emphasizing certain accounts. Republicans, including President Donald Trump and Attorney General Jeff Sessions,have claimed that Twitter has made it harder for people to find accounts that lean politically right. “We believe strongly in being impartial, and we strive to enforce our rules impartially," Dorsey said as part of his prepared testimony.

“In fact, from a simple business perspective and to serve the public conversation, Twitter is incentivized to keep all voices on the platform."

Reports suggest that many lawmakers appreciated Dorsey’s openness during his back-to-back hearings. However, it seems that Twitter shareholders were either not pleased with what the firm’s CEO had to say, or they are worried the government might take some type of action against the social media company.

Shares of Twitter fell as much as 6% Wednesday and closed regular trading hours Thursday down 5.87% to $30.81 per share.

 

 

Company Overview

Before Twitter reported its second-quarter earnings in late July, news broke that it had been suspending millions of accounts to combat its fake news and misinformation problem. Although most of the accounts that Twitter removed were not part of its reported user metrics, the firm saw its stock tumble following its Q2 financial results after its monthly active user totals slipped by one million from the previous quarter.

Twitter did close the quarter with 335 million MAUs, which represented just under a 3% year-over-year jump. But the company said it expects its MAUs to drop by mid-single-digit millions in Q3—which would mark its first-ever consecutive declines in that metric.

The company's average daily active users also jumped by 11% from the year-ago period. Plus, Twitter’s total ad revenues climbed by 23% to hit $601 million. TWTR’s total ad engagements also skyrocketed 81%, which could prove vital to the company’s long-term health as it pushes deeper into video with the likes of Disney's (DIS - Free Report) ESPN, NBCUniversal (CMCSA - Free Report) , and Viacom (VIAB - Free Report) .

Outlook

Twitter should be able to grab more advertisings dollars going forward because consumers are simply more difficult to reach in the age of Netflix (NFLX - Free Report) and Amazon (AMZN - Free Report) Prime. Looking ahead, our current Zacks Consensus Estimate is calling for Twitter’s third-quarter revenues to jump by 19.35% to hit $703.72 million, while full-year revenues are projected to climb by nearly the exact same percentage.

At the other end of the income statement, Twitter’s adjusted quarterly earnings are expected to soar by 40% to hit $0.14 per share. Meanwhile, the firm’s fiscal 2018 EPS figure is projected to hit $0.70 per share, which would mark a nearly 60% surge.     

Twitter’s earnings estimate revision activity has been mixed lately, but has trended downward overall. This helps it land a Zacks Rank #3 (Hold). With all that said, it seems like investors might want to wait and see for now as Twitter is likely to remain in focus for all the wrong reasons as we get closer to the midterms.

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