Twitter's Cost Savings Will Drive Margins Next Year

Heath Terry of Goldman Sachs is among several Wall Street analysts who viewed Twitter's earnings report favorably and believes there is some upside for the stock. In a research report on Friday, the analyst shared his belief that the risk to reward profile on the stock is favorable and he maintains a Buy rating with a price target boosted to $23 to from a previous $22.

Terry based on his bullish stance on Twitter's improving monthly active user (MAU) base — which incidentally rose 3 percent on year-over-year basis to 317 million and improving product innovation in the quarter. The analyst also highlighted accelerating year-over-year improvements in active minutes and tweet impressions, and a double-digit year-over-year growth in searches and DMs for the second consecutive quarter.

Terry's take on the company does contrast with those of Kevin O'Leary who argued that Twitter is merely a "feature, not a business."

Terry further stated that Twitter's fiscal 2016 adjusted EBITDA guidance came ahead of consensus estimates and is attributed to cost savings from the restructuring of the company's sales force.

"We continue to see significant value in Twitter's user base, content, and interaction data despite the company's difficulty in realizing that value," Terry wrote.

Bottom line, Twitter's stock is trading at 12.6x 2017E EV/EVITDA, which represents a discount to the sector's 13.3x multiple. The social media company could see improved profitability, new revenue streams and potential M&A optionality.