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Twitter Signals Uptrend As Q3 Loss Narrows

TwitterThe news of a possible takeover of social media platform provider Twitter Inc (NYSE: TWTR) kept the stock in a bullish orbit in early October. In anticipation of the same, On October 3, we had recommended purchasing a one touch call option, with a target price of $25 or lower. The prevailing share price at that time was about $19.

A week later, the stock hit a high of $25.25 and achieved our target. In the last week of October, the company reported its fiscal 2016 third quarter results that surpassed the analysts’ estimates. The Q3 results topped the analysts’ estimates.

However, the stock did not rise as the results were overshadowed by the news of suitors backing out from pursuing an acquisition deal with the company. Even though the company reported a loss, still, as detailed below, there are some positive developments which have the potential to lift the share price in the near future.

The San Francisco, California-based company reported an 8.2% increase in the fiscal 2016 third-quarter revenue to $615.93 million, up from $569.24 million in the similar period last year.

The net loss for the quarter ended September narrowed to $102.87 million or $0.15 per share, from a net loss of $131.69 million or $0.20 per share in the similar period last year. Excluding stock based compensation expense, amortization charges, and non-cash interest expense, among others, the Q3 2016 non-GAAP net income increased to $91.741 million or $0.13 per share, compared to $66.984 million or $0.10 per share in the Q3 2015. The Zacks analysts anticipated the company to report earnings of $0.09 per share on revenue of $605.8 million.

The company was able to record a 3% growth in its user base. At the end of third-quarter, Twitter had 317 million users, up from 307 million in the third-quarter of 2015.

To increase the user base, Twitter started live streaming of the Thursday Night Football games through an exclusive licensing agreement with the National Football League (NFL). Through a partnership with Bloomberg., the company recently offered a live broadcast of the US Presidential election debates Twitter also offers a wide range of advertising options to suit different kinds of campaigners. In the recent past, the company has started allowing professional broadcasters to upgrade their live video by subscribing to the Periscope VIP program.

As a part of its restructuring program, Twitter announced that it would trim another 9% (350 employees) of its workforce. It can be noted that the company laid off 336 employees in 2015. Thus, considering the better performance, we anticipate the stock to remain range bound with a bullish bias in the current quarter.

As the potential buyers started backing out, the stock fell like a pack of cards, last month. However, the proven support at 17 once again ensured that the stock did not dip below the psychological level of 15. Following the third-quarter results, the stochastic oscillator has risen out of the bearish zone. Based on these technicalities, we expect a short-term rally in the stock.

Twitter Stock Price: November 16th 2016

Twitter Stock Price: November 16th 2016

The rally is expected to lose strength near 21. So, a one touch call option with a target price of about $20.50 can be used for investment. Before investing, the trader should also make sure that the contract remains valid for a minimum of three weeks from the time of purchase.


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