Twitter Inc. (TWTR) is scheduled to report results on Thursday morning, October 24. The results are likely not to be dull, as the options market is pricing in a massive level of volatility for the stock. That said, analysts are looking for strong top-line growth this quarter, while earnings are likely to be less than impressive.
The technical chart for Twitter is less than inspiring and suggests that shares may fall following results to as low as $36.50, a drop of about 7.8% from the current stock price of around $39.60 on October 22. If history repeats itself and the company issues disappointing revenue guidance, as it has over the past three quarters, it may provide the fuel to get the stock price moving lower.
Expecting the Stock to Move
The long straddle options strategy, which is the purchase of one put and one call for the same strike price and expiration date, suggests that Twitter will rise or fall by 10% from the $40 strike price by expiration on October 25. It would place the stock in a trading range of $36.20 to $43.78.
Additionally, implied volatility for that strike price is extremely high at nearly 125%. That is nearly ten times greater than the implied volatility levels of the SPDR S&P 500 ETF (SPY), a proxy for the S&P 500, of 10.5% for the same expiration date.
The Chart Suggests A Decline in Price
The technical chart indicates that the stock may fall following results. The equity has failed at a firm level of technical resistance at $40.35 on multiple occasions since the beginning of October. Additionally, the shares are resting on support at $39.20 and appear to be forming a bearish continuation pattern known as a falling triangle. It would suggest that the stock drops to its next level of support to around $36.50.
The company has had a lot of success in the past when it comes to results, with revenue meeting or beating analysts’ consensus estimates in each of the past eight quarters. However, where the company has fallen short is in giving forward revenue guidance. Over the past three quarters, the company’s revenue guidance at the mid-point of the range has come in below analysts’ forecasts. For example, according to data compiled from TheFly, in February the company issued first quarter revenue guidance at the mid-point of $745 million versus forecast of $762.4 million. In April, the company issued second-quarter revenue guidance at the mid-point of $800 million versus estimates of $819.3 million. Finally, in July the company issued third quarter revenue guidance at the mid-point of $845 million versus estimates of $869.3 million.
Strong Top-Line Growth Expected
Analysts are forecasting revenue to have risen by 15.5% versus last year in the third quarter to $875.3 million. Those expectations are higher than the guidance the company provided in July when they guided investors to a range of $815 million to $875 million. Additionally, earnings are expected to have declined by 3.6% to $0.20 per share. But more importantly, given the company’s history of underwhelming forward revenue guidance, is that analysts are forecasting revenue to rise by almost 16% to $1.05 billion in the fourth quarter.
Should the company manage to surprise investors and post strong results and better than expected guidance the stock could be off to the races. However, based on the historical trends, that may not be the case this time around.
Michael Kramer is a financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.
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