SAN FRANCISCO -- No pressure, Twitter.
Fair or not, Facebook's blockbuster earnings last week has investors anticipating very good things from its social networking rival.
Twitter on Wednesday will report its first quarterly results as a publicly traded company, giving investors a first glimpse of its progress in growing advertising revenue and its user ranks.
Twitter shares have been on a tear since the company made its debut on the New York Stock Exchange in November. Shares have surged to their current trading price of $66 from $26.
They jumped again at the end of last week after Facebook reported its fourth-quarter earnings on hopes that Twitter can pull a rabbit out of its advertising business the way Facebook has for three straight quarters.
But Twitter's advertising business is in much earlier stages than Facebook's. The cold hard numbers: Analysts expect Twitter to generate $639.4 million in revenue and lose 19 cents a share in 2013.
Not to say Twitter isn't every bit as ambitious. It has been creating more ways for advertisers to reach Twitter users, and has borrowed some ad formats that have proved successful on Facebook.
And right before the San Francisco company went public, it bought promising advertising startup MoPub, which can help Twitter use the data it has on its users to show them ads elsewhere.
"Realistically Twitter is a few years behind Facebook in terms of its ad platform, but it is starting to catch up," said EMarketer analyst Debra Aho Williamson.
Twitter has one very real edge on Facebook. While Facebook began generating more ad revenue from mobile than from desktop for the first time in the fourth quarter, Twitter has always been a mobile company, generating more revenue from mobile than desktops.
But it's also still far smaller than Facebook, which has 1.2 billion users.
As of last count, Twitter had 230 million users. Twitter Chief Executive Dick Costolo says he plans to get that number into Facebook territory but it's still a long ways from it. Chances are Twitter will finish out 2013 with fewer than 250 million users.
"One of the things Twitter doesn't have is huge scale in terms of the number of people on the service. The Twitter audience is much smaller than Facebook," Williamson said. "And that continues to be a concern for advertisers. At the end of the day, advertisers really like all the targeting that they can do on social media. But they also want the mass reach, too. Facebook offers that in spades. Twitter is still trying to figure out how to reach that mass audience."
Pivotal Research Group analyst Brian Wieser has a $34 price target on Twitter and continues to rate it as a "sell."
"We continue to view Twitter as a stellar company with tremendous promise, but at the same time view current stock levels as difficult to justify," Wieser said. "Trading to date has likely been impacted by a limited float in the wake of a successfully managed IPO, and based on the stock's reactions to various news events, seems to be driven by momentum rather than fundamentals. On the latter basis, such levels seem unsustainable."
And Wieser sees plenty of possible risk for Twitter. It may need to raise additional cash. It may have to buy more companies to stay competitive in the marketplace. It likely will continue to struggle to become profitable as it invests in getting more users and ad dollars. It could suffer share declines when lock-ups from insiders expire. And in the end, it's still "a relatively unproven advertiser proposition," Wieser said.
Wieser forecasts $234 million in revenue in the fourth quarter, a 109% year-over-year gain.
For 2014, he expects $1.355 billion in revenue, a 108% year-over-year gain.
"Twitter is an increasingly important media vehicle which will soon be a critical component of most every major advertiser's media plans," Wieser said. "Further, while Twitter could very well have a solid fourth-quarter earnings and hold up operationally and as a stock for a number of periods to come, we think better entry points for investors will eventually emerge in the future."