With Slim Chances Of A Buyout, Twitter Needs A Plan C

Twitter Inc TWTR had been trying to turnaround and its Plan B was the attempted sale of the company. With both these plans seeming unsuccessful, Twitter needs to have a Plan C, SunTrust’s Bob Peck said in a report. He maintained a Hold rating on the company, with a price target of $18.

Twitter is widely expected to report weak Q3 results, with MAUs being flat or down, despite the Olympics. Peck noted that Q4 would likely be a "Make or Break" quarter, and it would be critical for the company to demonstrate “any potential efficacy of the current strategy.”

Several initiatives are culminating in Q4, including NFL, NCAA, Live events, Presidential Debates, UI changes, Moments for all and DoubleClick integration. In case the current trends continue, M&A seems inevitable, “albeit potentially at lower prices and not until 2017,” Peck commented.

Related Link: Debates, Football Can't Save Twitter's Stock Price

Focal Points

The analyst believes that during its earnings call, Twitter needs to focus on the following:

• Right sizing the cost structure: Twitter’s user growth is stagnating and the company needs to reduce excess costs. Twitter could reduce more than 10 percent of employee expenses, which would result in ~$100 million in savings per year.
• Incremental growth strategies: The company would need to elaborate on additional efforts and new strategies to potentially drive its performance in 2017 and beyond.
• Management's full-time commitment: “The most common question we receive from investors is "given the struggling turnaround, doesn't the company need a full-time CEO?" Investors believe the board and CEO Jack Dorsey will need to address this issue for the shares to stabilize and appreciate,” Peck noted.

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