Twitter Shares Soar After Q2 Earnings - Suntrust Raises Price Target and Reiterates Rating

Suntrust analyst, Robert Peck, released a note reiterating Twitter’s TWTR buy rating and raised the price target to $58 from $45. Twitter recently released a strong second quarter earnings report. Peck says that “this is as the inflection point quarter investors were waiting for, demonstrating improving monetization on stabilizing user metrics. “

Peck denotes five key items that drove his price target raise: 1) Topline growth accelerated for the fourth straight quarter driven by 125 percent ad revenue growth. 2) 16 million monthly active users added. 3) Average revenue per user grew, but is still only half of Facebook’s. 4) Data revenues are up 90 percent. 5) Incremental margins accelerated to 28%.

The buy rating was reiterated because Peck feels “Twitter is one of the few Platforms of the Internet (Google, Amazon, Facebook, LinkedIn) that has a long runway in its core business”. Peck anticipates that Twitter is going to narrow the 50 percent monetization gap to Facebook, while also investing in new growth areas; there is still room for Twitter to increase their average revenue per user.

There are future risks that face twitter. If Twitter cannot increase user engagement or growth over time, they lose attractability to advertisers, which was 85% of total revenue in 2012. There is also an increased level of competition for social media users and advertisers, and Twitter competes with companies that have more resources than them (Facebook, Yahoo, Google, Etc.)

Twitter is trading up about 25 percent during pre-market hours at $48.38 on Wednesday.