Twitter Inc. (TWTR) is set to report third-quarter 2014 results on Oct 27. Last quarter, the company posted a loss of 23 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 28 cents.

Let’s see how things are shaping up for this quarter.

Growth Factors this Past Quarter

Investors are expected to keenly follow Twitter’s user growth rate and engagement in the third quarter. We believe that the acquisition of Cover, Gnip, TapCommerce and Namo Media will expand Twitter’s product portfolio and monetization capability.

Twitter has been endeavoring for quite some time to enhance its operational sphere in order to seek revenue sources other than advertising. The company recently launched its much-awaited “Twitter Buy” to enable customers to search for products of their choice and buy them on its platform.

We believe that the development of additional services on its platform will drive top-line growth, going forward. However, rise in costs remains a concern as Twitter continues to invest in product development, acquisitions as well as sales and marketing. Intensifying competition from Facebook and Google are the major headwinds.

Earnings Whispers?

Our proven model does not conclusively show that Twitter is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: Twitter has a -14.82% ESP. That is because the Most Accurate estimate stands at a loss of 31 cents per share, wider than the Zacks Consensus Estimate of a loss of 27 cents.

Zacks Rank #2 (Buy): Twitter’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a number of stocks worth considering that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Facebook (FB), with an Earnings ESP of +6.25% and a Zacks Rank #2.

InvenSense (INVN), with an Earnings ESP of +10.00% and a Zacks Rank #2.

Web.com (WWWW), with an Earnings ESP of +1.92% and a Zacks Rank #2.

Read the Full Research Report on FB
Read the Full Research Report on INVN
Read the Full Research Report on WWWW
Read the Full Research Report on TWTR


Zacks Investment Research