Twitter is expected to release its earnings report for the second quarter of 2015 tomorrow after the close of the market. This is arguably going to be one of the most watched earnings reports in tech and for good reason. For the past few quarters, the company has been struggling with bringing new users on board; and while they may produce a profit, if better user data isn't achieved, we can expect to see a negative price reaction. Today, we'll talk about what we can expect to see from the earnings release, how investors are likely to react, and what binary options traders can do to take advantage of the trends. So, let's get right to it…
What We Can Expect From Twitter's Earnings Release
When it comes to most earnings reports, investors will have a singular focus; earnings. However, when it comes to Twitter, investors will be looking for two things; earnings and user growth. With that said, here's what I'm expecting to see from both areas of the report…
User Growth – Unfortunately, I don't think that Twitter is going to surprise anyone with compelling user growth in the quarter. In fact, I'm expecting the news to be just as bad as, if not worse than what we've seen in the past. Perhaps the most damning evidence that I have that insinuates this is the fact that Dick Costolo resigned from his position as CEO of the company. The reality is that CEOs of companies don't resign out of the blue when things are going well without a reason for resignation. If the user growth issue was being taken care of, Costolo would have been likely to hold his position as CEO and take the back lash from investors until the release of the earnings report; at which point he would pleasantly surprise investors and hang on to his position. However, that wasn't the case. So, I'm not expecting to see much positivity by way of user data.
Earnings – On the other hand, Twitter has a strong history of producing positive earnings, even with dwindling user growth. In fact, over the past year, the company produced better than expected earnings results 3 out of 4 quarters. The one quarter that Twitter didn't beat earning expectations, it produced exactly what analysts were expecting to see. Therefore, taking Twitter's earnings history into account, I think that it would be highly unlikely that the company missed earnings expectations this quarter.
What We Can Expect To See
While I am expecting for Twitter to exceed earnings expectations, I'm also predicting that we will see a negative price reaction to the release of the earnings report. The reality is that at this stage, investors aren't concerned with earnings. The major concern at the moment is user data; and considering that all signs point to negative user data for the second quarter, I'm expecting the reaction to reflect what signs are pointing to. Therefore, even though twitter is likely to exceed earnings expectations, investors are still likely to view the earnings report release in a negative light.
How To Profit From The Trend
First off, it's important to remember that no one can tell the future. So, before trading, wait for the event to happen. In the most probable case that Twitter generates weak user results, put options will likely prove to be profitable. However, if Twitter does produce a surprise and show positive user results, we can expect to see gains; making call options the profitable choice.
What Do You Think Will Happen?
Will Twitter prove that it is curing the user growth issue? Let us know your opinion in the comments below!