Twitter Analysts Mixed Going Into Earnings
Investors initially cheered Twitter's second-quarter report back in July, as the company reported a better-than-expected print. However, the gains didn't last long, and the stock plunged more than 10 percent after the company hosted a conference call later that evening.
Twitter's third-quarter earnings are scheduled to be released after Tuesday's market close. Estimize, the crowd-sourced earnings estimating platform, is predicting (based on 362 estimates) Twitter will earn $0.06 per share on revenue of $560.58. The Wall Street Consensus estimate is calling for the company to earn $0.05 per share on revenue of $559.79 million.
Morgan Stanley Downgrades To Underweight
Brian Nowak of Morgan Stanley downgraded shares of Twitter on October 21 to Underweight from Equal-Weight with a price target slashed to $24 from a previous $36.
According to Nowak, the Street is modeling Twitter to double its revenue base between now and 2017. The analyst noted that the Street's lofty expectations are occurring at a time when the platform is seeing its monthly active user (MAU) growth "materially decelerating."
Nowak noted that Twitter's ad load is already 10 times higher than Facebook Inc (NASDAQ: FB)'s, when adjusted for time involved. Accordingly, engagement trends are "moving against" Twitter's advertising opportunity. In addition, the platform's "more limited reach" makes its ad units more expensive and its mobile eCPMs are already a 13 percent premium to Facebook's mobile eCPMs.
Nowak also added that new entrants including Instagram, Snapchat and YouTube are selling advertising space on their respective platforms and all three of these names offer stronger user and/or engagement growth.
"We see this high pricing and rising competition adversely impacting Twitter's forward ad dollar growth and earnings power," Nowak wrote.
Nowak also presented two key debate points that Twitter's management should address moving forward: 1) Does Twitter need MAU growth to meet or beat the Street's revenue expectations? and 2) Are there any emerging competitors that consensus estimates are not including?
JMP Ignores Q3 Preannouncement, Focus Is On Lack Of User Growth
Ronald Josey of JMP Securities downgraded shares of Twitter to Market Perform from Market Outperform (no assigned price target) on October 14, primarily due to "limited visibility" around engagement growth.
Josey argued that Twitter's engagement growth is "likely to remain below" its industry peers, and it will take time for Moments and other new initiatives to gain traction. Accordingly, the analyst stated that a lack of a sustained user growth going forward should move investors to the sidelines.
"While we are encouraged that Twitter pre-announced 3Q15 revenue and EBITDA at or above the high-end of guidance — and feel this is another positive read-through for the industry overall — we are more focused on user growth at this juncture," Josey concluded.
Axiom: Layoff Announcement A Positive
Victor Anthony of Axiom commented in a note on October 12 that Twitter has been operating less efficiently than its peers, including Facebook. As such, the analyst suggested that the company's layoff announcement may not necessarily be a negative.
Anthony noted that a reduction in headcount could force management to prioritize more productive projects and ultimately improve overall productivity. The company also has a long-term goal of driving toward a 40 percent adjusted EBITDA margin from the 24 percent it showed in the first half of 2015. Additionally, a "less-bloated cost structure" could help the company "get them there faster."
"Overall, despite the positive news last week and our positive stance on the stock, we believe Twitter remains a work-in-progress and much work is ahead to drive up engagement and user growth," Anthony wrote. "A more streamlined and more nimble organization could help with those efforts."
Anthony maintained a Buy rating and $37 price target.
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Latest Ratings for TWTR
|Oct 2016||Loop Capital||Upgrades||Sell||Hold|
|Oct 2016||Evercore ISI Group||Upgrades||Sell||Hold|
|Sep 2016||Loop Capital||Downgrades||Hold||Sell|
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