Twitter, Inc. (TWTR), one of the world's dominant social media companies, has made headlines recently as it has faced pressure from all sides as the favored medium for controversial tweets fired off by political leaders. The big question is whether the added attention has fueled the growth of Twitter's monthly active users, a key metric, which in turn would fire up GAAP earnings per share (EPS) and quarterly revenue. Investors hope to get answers to these questions when Twitter reports fiscal Q3 earnings on October 24, 2019. Right now, analysts are expecting a mixed quarter, estimating a 38% decline in earnings per share on a 15% revenue gain. In the trailing 12-month period, Twitter stock has dramatically outperformed the S&P 500, rising by close to 37%.

If Q3 is anything like recent previous quarters, investors may be in for some big surprises. Twitter has boosted revenue over the long term, but that has not always been consistent from quarter to quarter. Similarly, EPS has had dramatic swings upward and downward in several recent quarters. For Q2 of this fiscal year, for instance, Twitter saw its revenue climb by about 18% to $841 million, in excess of analyst projections of $829 million. The company's stock spiked in response.

Twitter TradingView 10.22.2019
Source: TradingView.

Twitter has a history of earnings volatility. Back on October 25, 2018, there was a big price gap higher on better-than-expected earnings. Then on April 23, there was another price gap higher on an earnings beat. This set the stage for the most recent Q2 earnings report on Friday, July 26, which marked the third consecutive time the stock had jumped sharply on earnings. The main reason for the Q2 beat was a rise in advertising viewership by users.

The GAAP EPS figures for that quarter were dramatically higher than analysts anticipated. Analysts expected earnings per share of $0.074, and the actual figure was $1.43, a surprise of about 1,840%. For Q3 of this year, analysts expect Twitter to report GAAP earnings of about 8 cents a share, down sharply from a year earlier even as revenue rose to $875 million.

TWTR Key Metrics
  Estimate for Q3 2019 Q3 2018 Q3 2017
Earnings Per Share $0.08 $0.13 -$0.03
Revenue (in millions) 875 758.11 589.63
Monthly Active Users (in millions) N/A 326 330
TWTR Key Metrics

Twitter classifies monthly active users as account holders who logged in or otherwise accessed Twitter via website, mobile app or other access point within a 30-day period. As the table above indicates, Twitter's monthly active users figures remained fairly stable from Q3 2017 to Q3 2018. A slight decline in monthly active users to Q3 2018 may be the result of the company's decision during that period to not move toward paid SMS carrier relationships across a number of markets and to alter automated usage for its services. But despite this slight drop, Twitter's average revenue per users jumped, rising by 30% to $2.33 in Q3 2018 from $1.79 a year earlier.

Twitter has only reported figures regarding daily active users for under one year, but the number of daily users rose to 139 million in advance of the Q2 report. Still investors should look to monthly active users figures in the upcoming Q3 figures as an indicator of the overall performance of the company. Twitter has recently implemented new machine-learning strategies to aid new users in finding content which matches their interests. These and other efforts have led to an increase in operating expenses. But if the total number of monthly active users and the revenue rise in Q3 rise and future quarters as a result, these changes may have been well worth the additional costs to Twitter.