Morgan Stanley Initiates Twitter Inc. At Equal-weight

On Monday, analysts at Morgan Stanley initiated coverage on shares of Twitter Inc. TWTR with an Equal-weight rating and $42 price target.

Benjamin Swinburne outlined reasons for the Equal-weight rating.

Monetizing broader audience will take time. Swinburne finds that it will take significant time to to convert the broader audience to logged-on users which will add the most meaningful revenue to the company.

“Twitter’s global MAU growth has reflected a slower pace of adoption than expected, and we
forecast net adds decelerating in ‘15/16E. Focus has shifted to monetizing logged-off
visitors, but the opportunity likely reflects a marginally less engaged consumer of Twitter’s
content.”

Furthermore, Swinburne finds it difficult to compare Twitter advertising revenues to Facebook ad revenue.

“Monetization of registered users continues to improve, aided by a mix of higher priced ad units. Nevertheless, we view expectations to narrow the monetization gap with Facebook as optimistic given inherent differences in 1) time spent and 2) engagement vs. impression-based ad selling.”

Lastly, analysts find Twitter’s stock compensation is a large expense. “Stock-based compensation expense represents nearly 50% of revenues in ‘14E and we expect this remains a meaningful expense as Twitter competes to retain key talent.”

Shares of Twitter Inc. recently traded at $41.05 down 1 percent Monday morning.