Elon Musk Aside, Twitter Investors Will Be Watching for User Growth

Twitter (TWTR -2.99%) is scheduled to report first-quarter 2022 financial results before the markets open on Thursday. On Monday, the board of directors accepted Elon Musk's offer to acquire the company for $44 billion and while details of the planned acquisition will no doubt take center stage in the conference call following the earnings release, investors will also be looking at the social media site's daily active user totals.

Twitter aims to attract 100 million additional daily active users

As of the quarter ended Dec. 31, Twitter boasted 217 million daily monetizable active users. That was up from 192 million from a year prior. Twitter benefited from the pandemic's onset when people spent more time at home and looked for ways to stay connected to people online.

The rise in users and engagement helped boost revenue at its highest rate since 2015. After years of stagnating growth, Twitter increased revenue by 37% in 2021. Folks have spent more time on the platform since the pandemic's onset and are sticking around even as economies reopen.

Management expects revenue to grow by at least 20% in 2022. If revenue growth exceeds 20% in 2022, it would be the first time since 2014 and 2015 that the company achieved north of 20% growth in two consecutive years.

Rival Snap has already reported first-quarter results, which showed quarter-over-quarter user growth of 13 million. The figure puts pressure on Twitter to, at the very least, maintain user growth in the millions. Twitter has aspirations of reaching 315 million monetizable daily active users by 2023. That's nearly 100 million higher than its most recent updated figure, so continued growth will be crucial. The company defines monetizable daily active users as "people, organizations, or other accounts who logged in or were otherwise authenticated and accessed Twitter on any given day through twitter.com, Twitter applications that are able to show ads, or paid Twitter products, including subscriptions."

What analysts expect

Analysts on Wall Street expect Twitter to report revenue of $1.22 billion and earnings per share (EPS) of $0.03 for the quarter. If the company meets those projections, it would represent an increase of 19.2% and a decrease of 81.25%, respectively, from the same period the year before. The decrease in EPS should be no surprise to investors who have followed Twitter over the years. It has struggled to consistently deliver profits on the bottom line.

Regardless, the stock has been up 33% in the last month, buoyed by Elon Musk's offer to buy the company at $54.20 per share. As of this writing, shares were trading at $51.73. Even though the board of directors agreed to Musk's offer, the deal must still be approved by regulators. It's not a sure thing that regulators will approve the acquisition, so shareholders should still monitor the firm's quarterly figures and financial prospects until the deal is finalized.

Musk is chief executive of both electric car maker Tesla Inc (TSLA) and aerospace company SpaceX, and it is not clear how much time he will devote to Twitter or what he will do.

"Once the deal closes, we don't know which direction the platform will go" Agrawal told employees on Monday.

Edward Moya, an analyst at currency broker OANDA, said in an email to clients the deal was "great news for Twitter shareholders as it doesn’t seem like the company was going to get things right anytime soon."

But he also said: "Tesla shareholders can’t be happy that Musk will have to divert even more attention away from winning the EV (electric vehicle) race."

Still, Musk's 84 million-strong Twitter account is seen as an important, free public relations and marketing tool for Tesla.

The Twitter transaction was approved by the company's board and is now subject to a shareholder vote. No regulatory hurdles are expected, analysts said.

Daniel Ives, an analyst at Wedbush, said the company's board of directors had its back "against the wall" once Musk detailed his financing package and no other bidders emerged.

Although it is only about a 10th of the size of far larger social media platforms like Meta Platforms Inc's (FB) Facebook, Twitter has been credited with helping spawn the Arab Spring uprising and accused of playing a role in the Jan. 6, 2021, storming of the U.S. Capitol.

After Twitter banned Trump over concerns around incitement of violence following the U.S. Capitol attack by his supporters, Musk tweeted: "A lot of people are going to be super unhappy with West Coast high tech as the de facto arbiter of free speech."

Trump, whose company is building a rival to Twitter called Truth Social, said in a Fox News interview on Monday that he will not return to Twitter.

The White House declined on Monday to comment on Musk's deal, but said President Joe Biden has long been concerned about the power of social media platforms.

"Our concerns are not new," said White House spokesperson Jen Psaki, adding that the platforms need to be held accountable. "The president has long talked about his concerns about the power of social media platforms, including Twitter and others, to spread misinformation."