Canaccord's Renewed Outlook On Twitter

• Twitter Inc TWTR has seen more than 40 percent decline in its share price in the past six months.
• Canaccord Genuity’s Michael Graham has maintained a Buy rating on Twitter while lowering the price target from $45 to $40.
• Although the lack of MAU visibility could put pressure on the stock, Graham believes that the integration with Google Inc GOOG “is a step in the right direction.”

Twitter’s shares have decline 22 percent year-to-date, as compared to the 5 percent decline in the S&P 500. Graham attributes this decline largely to the significant pullback in the shares following the announcement of the Q2 results, with the MAUs missing the expectations.

In addition, the management “reset expectations to not anticipate a re-acceleration for some time,” according to the Canaccord report. Although Twitter’s advertising story continues to be robust, Graham believes that it is important for the company to focus on growing its user base.

“Management believes it has reached early adopters and technology enthusiasts, but has not cracked the mass market yet,” the report stated.

To reach the mass market, the company would need to focus on more product innovation, along with a marketing campaign that shows how the service should be used and why. “One way to reinvigorate MAU growth is to expand the number of visitors to the Twitter properties, relying on strong conversion to turn visitors into MAUs,” Graham said.

The integration with Google will lead to real-time Tweets showing up in the search results for both desktop and mobile searches. In the four months of the partnership having been launched, mobile search queries that lead to Tweets showing up among the search results has improved from 54 percent to 91 percent in the US.

“Assuming visitors to Twitter from these Google results don't overlap with MAUs, the integration could have an 8M logged-out user impact,” Graham mentioned, while adding, “The biggest impact comes from the sheer number of search queries that now show Tweets.”