Twitter (NYSE:TWTR) announces earnings on the 27th of this month and investors are keen to see what the CEO “Jack Dorsey” has to say with respect to the way forward for the company, especially after the recent mass lay-off the company announced last week. Overall, I think this is a good move as the company still hasn’t turned a profit since going public. Numbers don’t lie and the table below shows the true picture (Income results from its Q2 earnings shown below).
Source : csimarket.com
Ploughing all the profits back into the business is definitely worthwhile if the company is gradually decreasing its operating loss quarter over quarter. With Twitter, it simply has not been happening. Huge revenue spikes look great ($502 million done in Q2 – a 63% increase over Q2-2014) but if the bottom line is not improving, it suggests that the company is not investing into the business in the best way possible.
Twitter Stock Has Substantial Upside
What sticks out to me is the huge research and development budget which came in at almost $200 million last quarter (40% of revenues). The research side of this budget will most likely be the area that Dorsey will be cutting as he wants to focus more on bringing products to market. Dorsey’s comments when Twitter earnings are announced are going to be huge in relation to share price movement. What tanked the stock in Q2 what not so much the poor user growth number but management stating that user growth would be muted over the next 12 months. Let’s go through this article and discuss what analysts are predicting for Q3 and why I still think this stock still has substantial upside from its present $30.91 share price.
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